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Property and Casualty Insurance

Module 1: Property Insurance Module 2: Casualty Insurance

Table of Contents
MODULE 1: Property Insurance
Lesson 1: Insurance Terms and Related Concepts Lesson 2: Types of Policies Lesson 3: Commercial lines Lesson 4: Other Types of Policies Lesson 5: Policy Provisions and Contract Law

MODULE 2: Casualty Insurance


Lesson 6: Insurance Terms and Related Concepts Lesson 7: Types of Policies, Bonds, and Related Terms Lesson 8: Automotive: Personal Auto and Business (Commercial) Auto Lesson 9: Other Policies: Workers Compensation Insurance, Employers Liability Insurance And Related Issues Lesson 10: Policy Provisions

Property and Casualty Insurance

Module 1: Property Insurance


Sequence of Learning
The Property Insurance course begins with definitions important to understanding Property Insurance and passing the state-administered test. The definitions cover basic insurance terms contained in the contract and terms that are specific to Property Insurance, like perils, hazards, coinsurance, and formulas for settling claims, among other issues. Next, you will learn about the basic types of property policies, their coverages, possible endorsements and exclusions. Lesson Three introduces Business Lines of property insurance, including a few that may be new to you, like Boiler and Machinery policies, and several that you will discover are common solutions for certain types of business, like the Business Owners Policy (BOP), a comprehensive policy designed to meet the needs of many small and medium-size businesses. Lesson Four introduces other types of policies, like Inland Marine Insurance, Flood Insurance, Farm Insurance and others, plus the various tools that allow the policyowner to modify coverage. Finally, Lesson Five covers policy provisions and contract law issues that are important for an insurance professional to understand when selling Property Insurance.

Whats Different about Property Insurance


Consider the complexity of property insurance as compared to life insurance. Even though companies have expanded the types of life policies and introduced innovative packaging and benefits, life policies all basically do one thing - provide cash benefits upon the death of the insured. Insuring property is a more complicated matter. Every homeowner, every business has a different risk profile, and all are subject to a wide variety of perils. Generally, a one-size policy does not fit all. A foundry and a florist are both business operations, but own very different kinds of property. At first glance, it seems the only thing they have in common is that their businesses both begin with the letter f. But that is not true. They both have a need to insure against fire, theft, and a host of other common perils.

Property and Casualty Insurance

Property Policies Allow Policyowners to Add and Subtract Coverages


The various forms of coverage, exclusions, inclusions, and definitions can be confusing, so here is a pointer to keep you oriented as you work through each lesson: To meet the property insurance needs of so many different businesses, the insurance industry has evolved various forms that allow businesses to add and subtract coverages according to their needs. Think of them like a food menu. The basic form is the meat and potatoes everyone gets. It covers against fire, lightning and other common perils. The broad form still includes the meat and potatoes, but provides vegetables and a drink, with extended coverage for other types of perils. The special form includes the first two, but gives a full menu of coverage for physical losses, with noted exceptions. Think of this as the dessert.

Forms can include attachments, endorsements, floaters, and other provisions that customize coverage for the insured. For example, a business owner may choose to settle for replacement cost rather than actual cash value. The good news for business owners is that they only pay for the coverage they need. No Brussels sprouts on the menu unless its good for business! The good news for insurance professionals is that they have a chance to deeply understand each business and provide services that can save jobs and keep businesses running. To have the power to serve as a professional, one must first have the knowledge. So, lets get started!

Property and Casualty Insurance

Lesson 1: INSURANCE TERMS AND RELATED CONCEPTS


This lesson focuses on the following topics: Purpose of Insurance Parts of an Insurance Contract Risk Loss Peril Hazard Insurable Interest Deductibles Indemnity Actual Cash Value (ACV) Replacement Cost (RC) Limit of Liability Coinsurance Extensions of Coverage Additional Coverages Accident vs. Occurrence Cancellation Nonrenewal Vacancy and Unoccupancy Right of Salvage Abandonment Liability Negligence

Property and Casualty Insurance

Purpose of Insurance
The purpose of insurance is to provide a practical solution to economic uncertainties and unexpected losses by spreading risk. For test purposes, insurance is defined as a social device for handling risk by transferring it.

Parts of an Insurance Contract


We begin with the insurance policy. Everything revolves around the policy, which defines the scope of coverages and the duties of all parties. Because an insurance policy is a legal contract, it must be specific about the agreements between the insured and the insurer. Most policies contain five parts, and you can remember them with the acronym D I C E - D: D - Declarations are usually found on the first page of the policy, and include: the kind of insurance, the name and address of the insured, description of the property, amount of coverage, and the cost of the policy. I - Insuring Agreements are the core of the policy. This section describes the insured property and the perils that are covered by the policy. To use insurance language, it describes the losses for which the insured will be indemnified or protected. C - The Conditions section outlines the responsibilities and obligations of both the insurance company and the insured. E - The Exclusions section describes losses the policy doesnt cover in other words, losses for which the insured will not be indemnified. D - The Definitions section clarifies the meaning of certain terms used in the policy.

More on Policy Conditions


Cancellation The policy sets forth the conditions for cancellation. The first named insured may cancel at any time by giving advance written notice to the insurer. The insurer can cancel with at least 10 days advance notice if the reason is nonpayment of premium, and at least 30 days for any other reason. If the insurer cancels, a pro rata share of the remaining premium must be returned. A penalty can be charged against the remaining unearned premium if the insured cancels.

Property and Casualty Insurance

Changes and Premiums Changes in the policy can only be made with the consent of the insurer. Insurer and rating organizations have the right to inspect the insured property. The first named insured is responsible for paying the premiums.

Transfer of Rights and Duties The transfer of rights and duties is also known as the Assignment clause. It is a common feature of both personal and commercial policies. The Assignment clause contains two simple provisions: The insurer must give permission to transfer the rights of the policy. If the named insured dies, rights are transferred to the deceaseds legal representative.

More on Common Policy Declarations


Policy Declarations describe who is insured, when the insurance is effective and what lines are insured. It includes the: Name and address of the named insured Policy period, including the time and date coverage begins Description of the business covered under the policy Coverage parts purchased, and their premium amounts List of forms applicable to all coverage parts

A Property Insurance contract relies upon several familiar ideas - risk, loss, peril and hazard - and each is precisely defined for insurance purposes.

Risk
A risk involves uncertainty, or the chance of a loss. There are two types of risk: A Speculative Risk has the potential of either improving or harming the financial position of the person taking the risk. Gambling is the best example of speculative risk. Insurance policies will NOT protect speculative risks.

Property and Casualty Insurance

A Pure Risk, on the other hand, IS covered by insurance. A pure risk is a potential for loss, not gain. Insurance only covers actual losses, and does not allow the insured to make money because of a loss. In fact, the goal of insurance is to restore the insureds financial position just prior to the loss.

Loss
A loss is an unintended or unforeseen reduction in the quantity, quality or value of property listed in the policy. Anyone who has claimed insurance after a traffic accident knows that losses may be partial or total. A Direct Loss is a clear, straightforward loss that clearly occurs because of an insured peril, without any intervening cause or separation in time. An Indirect or Consequential Loss is a loss or damage that results as a consequence of the physical losses. An indirect loss usually occurs after a period of time has elapsed.

Example: A forklift manufacturing plant burns to the ground. The direct loss is the total destruction to the building and its contents. The indirect loss is the inability of the factorys owner to conduct business following the fire. In the case of a fire, the cause of the loss is obvious. Sometimes, the cause and effect or we could say, the peril and the loss are separated by time, but the peril still causes the loss. In this situation, the peril is a Proximate Cause of a loss. Proximate Cause of a loss is an action that produces the loss without the intervention of any other factor. The proximate cause of a loss is an important issue in insurance because it determines which policy will pay for a loss. Example: Employees at a company party enjoy the appetizers, but everyone who eats the smoked salmon becomes ill. One employee is so sick he becomes loses consciousness driving home and has an auto accident. Who pays for the losses resulting from the accident? The insurance policy that covers the proximate cause of the loss is liable. In this case, his employers policy will likely pay instead of his personal auto policy.

Property and Casualty Insurance

Peril
A peril is what creates risk. It causes the loss covered by insurance. For example, if a home is destroyed by a fire, the fire is a peril. An insurance policy defines the perils it covers: Property and casualty insurance policies are written to cover either named perils or all risk or open perils. Named perils are the specific perils covered by a policy. In order for the insured to collect from a loss, the specific peril that caused the loss must be listed. An all risk or open perils policy covers all risk of loss - that is, all perils except those that are specifically excluded.

Hazard
A hazard is any factor, or any situation, that increases, or contributes to, the probability that a peril will occur, thereby increasing the chance of a loss. Oily rags stored next to a furnace constitute a hazard. An insurance company is concerned about three kinds of hazards.

Types of Hazards
Physical Hazard A visible or tangible condition of the premises that increases the chances of a peril occurring, like faulty wiring, slippery floors, icy roads, gasoline cans, or other obvious situations. Moral Hazard The possibility that the insured may try to defraud the insurance company through intentional and deliberate destruction of property, by arson, for example. Morale Hazard Attitudes or behaviors that make a loss more likely, like indifference, carelessness, laziness or lack of concern for the property. Leaving keys in a car, smoking in bed, and exceeding the speed limit are all morale hazards.

Property and Casualty Insurance

Insurable Interest
In order to qualify for Property insurance, the policyowner must stand to lose something financially should anything happen to the covered property. The policyowners insurable interest must be valid at the time of a loss. Example 1. A bank or other mortgage holder has an insurable interest in a home it holds the deed to. 2. A business owner has an insurable interest in property owned by the business.

Deductibles
The deductible is the amount that must be subtracted from total loss before insurance coverage kicks in. If a policy specifies a $1,000 deductible and the loss is $10,000, the policyowner pays $1,000 and the company picks up the remaining $9,000.

Indemnity
Indemnity is simply the duty of protecting against loss or damage. Insurance contracts are contracts of indemnity. The insurance company indemnifies the policyowner by promising to protect against covered losses up to the limit of the policy. The purpose of indemnification is to restore the policyowners financial position enjoyed before the loss occurred. Example: Billy Bob bought a new car three years ago for $22,000. Today, it has a book value of $14,000. According to the principle of indemnity, the insured should receive no more than $14,000 if the car is demolished because that would represent Billy Bobs financial position before the loss occurred.

Actual Cash Value (ACV)


Many losses are settled with the insurance company on an actual cash value basis. This is usually calculated by determining what the item would cost to replace (replacement cost) and subtracting an amount for depreciation (use).

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This is only fair. In fact, the principle of indemnity would be violated if the insured were paid the full replacement cost without deducting anything for having used the insured item. The formula for Actual Cash Value is: ACV = Replacement Cost (minus) Depreciation

Replacement Cost (RC)


The Replacement Cost is the amount needed to restore or replace damaged or destroyed property with property of like quality and construction. No deduction is made for depreciation.

Limit of Liability
The limit of liability is the maximum amount the insurance company will pay for a specified loss, or for all losses up to the policy limit. The insurer determines the reimbursement for a loss by applying the principle of indemnity and policy conditions. The limits of liability are found on the Declarations page.

Coinsurance
Many policies require coinsurance to encourage policyholders to insure property to value in other words, to have enough insurance to cover most of the propertys value. A typical coinsurance clause requires the insured to carry coverage for 80% of the propertys value. The policyowner who meets coinsurance requirements will enjoy a reduced premium rate and partial losses will be paid in full. Those who do not satisfy the coinsurance requirement will discover that partial losses are subject to a penalty payment.

Extensions of Coverage
A property policy can extend coverage to property like outbuildings, or personal property that is kept off premises, like items in a car or dorm room. Extended coverage on a fire policy may include windstorm, hail, smoke, explosion, riot, civil commotion, vehicles, and aircraft. Some extensions may be included with the policy; others are optional.

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Extensions may provide reduced or separate limits of liability, or require the insured to meet certain policy requirements before applying for extended coverage.

Additional Coverages
Like extended coverages, additional coverages offer some additional policy coverage under certain conditions associated with a loss. Several examples will be discussed in later lessons of this course.

Accident vs. Occurrence


Property and casualty contracts are usually written to cover two kinds of perils: a one-time accident and an occurrence. An accident is an event that is unintended and unforeseen, Examples of an accident, a mishap. A woman jogger falls when a bicyclist crosses her path. A car hits a telephone pole. Lightning causes a fire when it strikes an office building.

An occurrence is a also a sudden, unexpected, unforeseen event resulting in financial loss but it includes gradual, continual and repeated exposure to an adverse condition. The following are occurrences, not accidents: An underground storage tank at a service station gradually pollutes ground water. An insured worker becomes ill due to continuous and repeated exposure to toxic fumes on the job.

Cancellation
The insured can cancel a policy without notice, but the state requires the insurance company to give prior written notice of cancellation and the effective date of cancellation.

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An insurance company that cancels the policy before its expiration date is obligated to return money to the policyowner on a pro rata basis, which means the return of all the money that has not been applied to premium cost, without deducting service fees or underwriting costs. A flat cancellation occurs when the insurance company cancels the policy on the date it was to have taken effect. The company must then refund the entire premium. A policyowner who cancels the policy before its stated expiration date will receive a refund of any unearned premium calculated on a short rate basis, which means the insurance company will deduct its expenses from the amount returned. If either the company or the policyowner cancels the policy on its effective date of expiration, neither party owes the other any money, provided sufficient notice was given.

Nonrenewal
Nonrenewal is notice given by the insurance company informing the insured of its decision to not renew the policy after its termination date. Reasons may include non-payment of premiums, misrepresentation, higher than expected expenses, or a decision to quit offering a type of coverage. There may be some state limitations on the insurance company for nonrenewal.

Vacancy and Unoccupancy


Insurance policies treat vacancy and unoccupancy differently, so make sure you understand the differences and analyze the test questions carefully. Vacancy refers to an unfurnished building that is not being used as a dwelling, or for a business. Some policies may have a slightly different definition. Unoccupancy refers to a building that contains furniture and personal effect, but is temporarily unoccupied.

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Right of Salvage
An insurance company has the right to settle a property claim by repairing or replacing property, or providing cash to the insured. After the claim is settled, the company has the right to salvage property that has either been destroyed or partially damaged, but still has some value.

Abandonment
A policyowner cannot abandon the insured property and then demand the insurance company pay its full value. Under the insurance contract, the insurance company is the party with the right to settle a property by payment, repair or outright replacement.

Liability
Liability insurance protects policyowners against financial loss from claims by third parties. Like other risks covered by the general insurance system, it works by transferring the burden of financial loss from the insured to the insurance company.

Negligence
The law imposes a duty on everyone to act in a reasonable and prudent manner. When they dont they violate Tort Law. A Tort is a legal wrong that results in injury to persons or property. Insurance companies will not cover intentional acts that violate Tort law. Negligence can be seen as an unreasonable or imprudent act, but it is never an intentional act. Negligence is also known as an unintentional Tort. Insurers have created a checklist to determine whether one fails to do what a reasonable person would do under similar circumstances. Was there a legal duty to act or not to act? Was there a breach of that duty? Was there injury or damage to another person? Was the act the proximate cause of the damages?

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o A case for negligence can be made if all four questions can be answered with a yes. The insurance policy will typically pay for the covered losses.

This concludes lesson one. Return to your online course player to take the Lesson Quiz.

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Lesson 2: TYPES OF POLICIES


This lesson focuses on the following topics: Personal Lines Dwelling and Contents Basic Form for Dwelling and Property (DP-1 Form) Perils Insured Against (DP-1 Form) Extended Coverage Perils (DP-1 Form) Volcanic Eruption (DP-1 Form) Vandalism and Malicious Mischief (V&MM) (DP-1 Form) Other Coverages Exclusions under DP-1 Whats Not Covered How Losses Are Settled Additional Dwelling Coverage Coverage E - Additional Living Expenses Broad Form (DP-2) Additional Coverage Definitions Additional Coverage Available with DP-2 and DP-3 (Not available with DP1) More on Special Form DP-3 Review Chart on Dwelling Property Forms Replacement Cost Coverage Dwelling Policy Endorsements Personal Liability Review Chart on Homeowners Property Forms Policy Sections of an HO Policy Earthquake Coverage Endorsements Mobile Homes Coverage

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Personal Lines
Personal lines are insurance policies written for individuals, as opposed to commercial lines written for businesses.

Dwelling and Contents


The Dwelling policy provides protection for individuals and families against loss to dwellings and personal property. The Dwelling policy provides more limited Property coverage than the Homeowners policy, which will be reviewed in another Chapter. The unendorsed Dwelling policy - which is not part of a basic policy provides Property coverage only, in contrast to a Homeowners policy that provides a package of Property and Liability coverage.

Dwelling property forms are used to provide coverage for the following types of personal residences: One, two, three and four-family homes and apartment houses. Dwellings housing up to five roomers or boarders. Permanently-installed mobile homes or trailers. Homes that do not qualify for Homeowners insurance, such as rentals. The Dwelling policy covers the named insured and his or her spouse, as long as the spouse lives in the same household as the insured.

Basic Form for Dwelling and Property (DP-1 Form)


This Basic Form provides the following coverages:

Coverage A - Dwelling
Dwelling Structures attached to the dwelling Materials and supplies used to repair the dwelling or other structures

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Coverage B - Other Structures


Insures buildings that are on the premises, but not in contact with the dwelling. Cannot be used for commercial, manufacturing or farming situations.

Coverage C - Personal Property


Insureds personal property. Personal property belonging to the insureds guests or servants. The following items are not covered: o Money, coins and securities o Paper and computerized accounting records o Software media o Credit cards o Animals, including birds and fish o Aircraft o Motor vehicles other than motorized equipment used to maintain the property o Boats, other than rowboats and canoes

Coverage D - Fair Rental Value


Covers the financial loss to the insured if the loss to the dwelling makes it uninhabitable and the insured cannot collect the rent that would have been received if the loss had not occurred. 10% of the insurance on the dwelling is available for Fair Rental Value coverage.

Perils Insured Against (DP-1 Form)


A peril is the cause of the loss such as fire, wind or vandalism. Perils that are automatically covered under the Basic form include fire, lightning and internal explosion.

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o An internal explosion is an explosion that occurs in an insured building or in a building containing covered personal property. o Typical losses covered include the explosion of a furnace, stove or hot water heater. o Steam explosions are excluded if the equipment is owned, leased or operated by the insured.

Extended Coverage Perils (DP-1 Form)


The insured may choose to be covered against a list of additional perils that are sometimes called the Extended Coverage perils. While these perils are already printed in the DP-1 form, no coverage applies until the insured pays the additional premium. The following Extended Coverages (EC) can be added: Windstorm: Protects against losses from direct action of the wind, including objects hurled by the air that cause damage. Civil Disorder: Losses arising from an uprising or disturbance by a large number of persons. Smoke: This EC broadens the smoke peril to any sudden, accidental damage from smoke in other words, smoke from a hostile fire. Hail: Covers direct action of hail to the insureds property. Aircraft: Protects against damage caused by the falling of an aircraft or its parts, including self-propelled missiles, spacecraft, helicopter, etc. Vehicles: Provides protection for any damage caused by a vehicle, unless it is owned by the insured. Does not include damage to fences or driveways. Explosion: Expands explosion coverage, whether they originate inside or outside the building including, including: o Bursting water pipes o Electrical arcing o Rupture, bursting or pressure reduction devices o Steam boilers or pipes Riot: Direct loss caused by striking employees. Riot and civil commotion are very close in definition.

Test Clue: Try using the Acronym W C S H A V E R to help remember the Extended Coverage Perils.

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Volcanic Eruption (DP-1 Form)


This peril covers damage caused by the eruption of a volcano, including the ensuing lava flow and airborne particles, but not losses caused by earthquake, land shock waves or tremors.

Vandalism and Malicious Mischief (V&MM) (DP-1 Form)


Includes any willful and malicious damage or destruction, except theft and glass breakage. These acts must be intentional to be covered. This coverage is included automatically with the DP - 2 Broad Form.

Other Coverages
In addition to insuring against the listed perils, the Dwelling Basic form provides the additional following coverages: Other Structures: This provides up to 10% of Coverage A to cover losses of other structures. (Basic policy coverage) Debris Removal: Pays for the expense of removing debris resulting from a loss that is covered by the policy. Property Removed: Covers loss to property that occurs while the property is being removed to protect it from a covered peril. Reasonable Repairs: This pays for the reasonable costs to make necessary repairs to protect property from further damage following a covered loss. Improvements, Alterations and Additions: Provides coverage for insureds who are tenants for improvements or alterations to the dwelling made at the tenants expense. Up to 10% of the coverage C limit is available. Fire Department Service Charge: Pays up to $500 for fire department charges incurred when the fire department is called. NO deductible applies. Worldwide Coverage: Provides 10% of the Coverage C limit for personal property while it is located anywhere in the world such as clothes taken on a vacation. Rental Value: Provides 10% of Coverage A limit for loss of fair rental value, payable at 1/12th of the 10% limit for each month the described location is unfit for its normal use. This is the basic policy coverage.

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Exclusions under DP-1 - Whats not Covered


Water damage in general, including flooding, water backups into a building or seeping from below the ground. Losses resulting from earth movement, except for direct loss by fire or explosion resulting from earth movement. Losses due to power disruption occurring away from the insureds location. War Nuclear hazard Losses caused by the insured or by someone else at the insureds direction. Replacing regular glass with safety glass. Losses resulting from ordinances or laws that require more expensive reconstruction or demolition.

How Losses Are Settled


Insurance professionals need to precisely understand the policy language that explains the insurers responsibilities and conditions for settling losses. Lets track what this would mean for your client - Mighty Fine Manufacturers (MFM) who lost a valuable widget in a recent fire.

Loss Settlement
Covered property losses are settled for their actual cash value, and that figure cannot exceed the amount necessary to repair or replace the property. The actual cash value of MFMs widget was $10,000. MFM couldnt expect a higher settlement just because its founder bought the widget in 1981 and it has historical value to the company.

Our Option
Gives the insurer the right to repair or replace damaged property with the equivalent property within 30 days of receiving the insureds statement of loss. MFMs widget was so old they didnt even make that model anymore. But they did make newer, better, and cheaper ones. The insurer may decide to give MFM an equivalent widget.

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Pair or Set
This clause in a policy explains how a claim will be handled when one item of a pair or set is damaged. The company may either: Repair or replace any part to restore the pair or set to its value before the loss. Settle by paying the difference between the actual cash value of the set before and after the loss.

For example: In a stroke of really bad luck, the home of MFMs President also caught on fire and destroyed one earring of a custom-designed set owned by his wife Diane. Each earring was worth $1,000, but the pair was worth $5,000. Diane said that wearing one earring would make her look like a pirate! and she wanted a settlement of $5,000. The insurance company that insured their home property preferred to pay only $1,000, but neither amount was fair. The company should either replace the earring or pay Diane $4,000 less any applicable deductible.

Deductibles
This clause, located in the Declarations section, states that only the amount of loss over the deductible will be paid, up to the limit of liability. MFM paid the first $2,000 deductible and their insurer paid the remaining $8,000, to make up the widgets actual cash value of $10,000.

Other Insurance
If a loss is also covered by other insurance, the insurance company will pay only its proportion of the loss. Since MFM had no additional property insurance, its primary insurer was responsible for the replacement value, less deductible.

Loss Payment
The loss will be paid within 30 days after reaching an agreement with the insured.

Recovered Property
If the insured or insurer recovers property on which the insurer has made loss payment, the other party must be notified. The insured may have the property returned, in which case, the loss payment will be adjusted, or allow the company to have it. As it turned out, the retired engineer who designed MFMs original widget heard about MFMs problem and offered to repair the damaged widget for $5,000. MFM liked the deal and notified the insurer, who had already paid MFM $8,000 for the loss. The insurer had the right to either ask for $3,000 back from MFM or allow them to keep the money.

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Additional Dwelling Coverage


All three Dwelling forms, DP-1, DP-2 and DP-3 provide the basic policy coverages, including: Coverage A - Dwelling Coverage B - Other Structures Coverage C - Personal Property Coverage D - Fair Rental Value

In addition, both the Broad Form (DP-2) and Special Form (DP-3) provide an additional coverage known as Coverage E.

Coverage E - Additional Living Expenses


Coverage E pays for additional living expenses after a covered loss. Specifically, it provides support for the insured during the time needed to repair or replace the damaged property or become settled elsewhere in permanent quarters. Coverage E is bundled with the DP-2 and DP-3 but it may also be added to the DP-1 by endorsement with an extra premium.

Broad Form (DP-2)


The Broad form (DP-2) includes all those perils listed in DP-1, as well as some additional perils, as follows: Burglar damage Ice and snow weight Glass breakage Accidental discharge Falling objects Freezing of pipes Electrical damage Collapse Tearing apart

Note: The acronym to help you remember: BIGAFFECT

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Additional Coverage Definitions


Burglar Damage
Burglar damage covers damage done to the property, but not to any stolen property.

Ice
Provides protection from damage due to falling objects such as ice, snow, and sleet. Covers the insured building and/or its contents. Ice coverage does not include: Awnings Fences Patios Pavements Swimming pools Foundations Retaining walls Bulkheads Wharves Docks Piers

Glass Breakage
Covers all building glass, as long as the insured premises have not been vacant for 30 consecutive days or more immediately before the loss.

Accidental Discharge
Accidental discharge of water and steam from plumbing, heating, air-conditioning or fire protective sprinkler systems, or of a household appliance. This does not include: Losses due to continuous leakage or seepage Damage to the system or appliance causing the escaping water or steam

Again, a building unoccupied for more than 30 consecutive days immediately before the loss is not covered.

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Falling Objects
If a falling object first damages the roof or exterior wall, the damages to the exterior of the insured premises and its contents are covered. Damage to the falling object itself is not covered. Example: Outdoor antennas, wiring, equipment, awnings and fences are not covered.

Freezing of Pipes
Damages caused by freezing pipes are covered as long as the insured has taken reasonable care to: Maintain heat in the building. Shut off the water supply and drain the system.

Losses are not covered if the dwelling is vacant, unoccupied or under construction.

Electrical Damage
Provides coverage for damages resulting from sudden and accidental electrical current surges or interruptions.

Collapse
The collapse peril covers the risk of direct physical loss due to the collapse of a building or any part of it caused by: Perils insured against in the policy Hidden decay Insect damage Weight of contents Weight of rain or snow collected on the roof Use of defective materials

Collapse coverage does not cover damage due to: Settling Cracking Shrinking Bulging Expansion

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The following items are excluded from Collapse coverage: Awnings Fences Patios Swimming pools Underground pipes, drains and septic tanks Foundations

Tearing Apart
Covers damages caused by sudden and accidental tearing apart, cracking, burning or bulging of steam or hot water heating systems, air-conditioning, automatic fire protective sprinkler systems, or hot water heaters. This peril does not include loss caused by freezing, except as provided in the peril of freezing.

Additional Coverage Available with DP-2 and DP-3 (Not available with DP-1)
Trees, Shrubs and other Plants: Pays up to 5% of the Coverage A limit for damage to trees, shrubs, plants or lawns caused by a specified list of perils. There is a $500 maximum for damage to any one tree, shrub or plant. Collapse: Pays for the collapse of the dwelling caused by a specified list of perils. Glass or Safety Glazing Material: Pays for the breakage of glass or safety glazing material and damage to covered property caused by glass breakage.

More on Special Form DP-3


The DP-1 and DP-2, which are written to cover specific perils, but the DP-3 is an All Risk or Open Perils policy. The DP-3 is defined by its exclusions. If a peril is not specifically excluded, it is covered. Contents covered under DP-3, are automatically insured against the same perils as provided under the DP-2. In other words, DP-3 provides Broad Form coverage on personal property or contents and All Risk or Open Perils coverage on the dwelling and other structures.
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Review Chart on Dwelling Property Forms


Perils covered for Dwelling Owner
DP-1 Basic Form
Fire Lightning Internal Explosion plus Extended Coverage Windstorm Civil commotion Smoke Hail Aircraft Vehicles Volcanic eruption Explosion Riot Vandalism Malicious mischief

DP-2 Broad Form


Fire Lightning Internal Explosion plus Extended Coverage plus Broad Form Additional Perils Burglar damage Ice & snow weight Glass breakage Accidental discharge Falling objects Freezing of pipes Electrical damage Collapse Tearing apart

DP-3 Special Form


All Risk On Dwelling with Broad Form (DP-2) Perils On Personal Property plus THEFT

Replacement Cost Coverage


Both the DP-2 and DP-3 settle losses to personal property at actual cash value. Losses to the dwelling and other structures, however, are paid on a replacement cost basis with no deduction for depreciation. However, the insured must carry insurance equal to 80% or more of the full replacement cost of the building.

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Example: Billy Bobs home has a replacement value of $200,000. To have the home restored or replaced at replacement cost, Billy Bob must carry insurance equal to or greater than 80% of $200,000, or $160,000. However, Billy Bob forgot the rule and does not carry enough insurance to qualify for replacement cost coverage. Therefore, he will be paid: The actual cash value of the loss. A proportion of the replacement cost, whichever is larger. Billy Bobs reimbursement is calculated using the Proportional Replacement method. Lets assume that Billy Bob has a loss of $40,000. For full replacement, he needed $160,000 of insurance, but only has $130,000. Here is the formula for proportional replacement: Insurance carried -------------------------- X Insurance Required

Amount of loss = Amount of reimbursement

Using the proportional method, reimbursement will be: $130,000 -------------- = .8125 x $40,000 = $32,500 $160,000 Billy Bob will receive $32,500, minus any deductible.

Dwelling Policy Endorsements


These endorsements can be added to the Dwelling policy: Automatic Increase In Insurance: Annual increase in the Coverage A amount of 4%, 6% or 8% Broad Theft Coverage: Covers theft, attempted theft, vandalism and malicious mischief resulting from theft. It can be written for an owneroccupied dwelling or an apartment by a tenant who is the named insured. Property is covered while it is on or off the premises. Dwelling under Construction: When the intended occupant of a dwelling under construction is the named insured, this endorsement is attached to the Dwelling policy to provide coverage, with the following provisions:

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The limit of liability that applies at any given time is a percentage of the policy limit based on the value of the partially completed dwelling. The available policy limit increases as construction of the dwelling progresses.

Personal Liability
The insured may purchase Personal Liability and Medical Payments to Others Coverage as an endorsement to the Dwelling policy. These coverages can also be purchased as a separate policy, and are similar to those provided in the Liability section of the Homeowners policy, which will be covered in the next Section.

Personal Liability - Coverage L


Coverage for damages the insured is legally obligated to pay because of bodily injury or property damage caused by an occurrence that is covered. The insurer will defend the insured against such claims at its own expense, even if the suit is groundless or fraudulent. The policy limit is $100,000.

Medical Payments to Others - Coverage M


The insurance company will pay all necessary medical expenses incurred within three years of an accident that causes bodily injury. Coverage applies to injuries sustained: o While the injured party is on the insureds location with the insureds permission. o While the injured party is off the insured location, if the injury arises out of a condition that was: Sustained on the insureds location Caused by an animal in the insureds care. Caused by the activities of the insured.

o There is a policy limit of $1,000 per person. o Coverage applies whether or not the insured is legally liable. Coverage does not apply to any injury sustained by the insured or the insureds family members.

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Homeowner (HO Forms)


Homeowners policies allow property owners to select the contract that most closely fits their needs and their ability to pay. There are five Homeowners policies. While each has some unique characteristics, they all share at least one common attribute. Each package contains property (fire) and casualty (personal liability and theft). Homeowner policies combine consumer needs in one, multi-line policy. In the modern Homeowners contract, Section I contains the property coverages and Section II provides coverage for legal liability. Section I will vary according to the HO form, while section II will be identical in all forms. The five Homeowners forms are: HO-2 Broad HO-3 Special HO-4 Tenant (or contents) Form HO-6 Condominium or unit owner HO-8 Modified Coverage

HO-2 (Broad Form)


Provides broad coverage for direct physical loss caused by: Fire Lighting Internal Explosion Extended Coverage Perils (EC) Vandalism & Malicious Mischief (VMM) Broad Form Additional Perils (Remember BIGAFFECT)

HO-3 (Special Form)


Provides open peril coverage for direct physical loss caused by: HO-2 perils on the personal property (contents) All Risk or Open Perils on the dwelling and other structures Theft

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HO-4 (Tenants Form)


Designed for tenants of apartments. Provides broad coverage for personal property. Similar coverage to the broad coverage for personal property found in HO2 and HO-3. No coverage for the dwelling.

HO-6 (Condominium Form)


Like the HO-4, the HO-6 is designed to insure personal property of condominium owners. Similar coverage to that provided under the HO-2, HO-3 and HO-4. Provides very limited dwelling coverage.

HO-8 (Modified Coverage Form)


Designed for older homes. Replacement values may far exceed market values. Basic coverage on the dwelling and personal property. Similar to the DP-1 with EC perils and V&MM coverage. Has restrictions on valuation of losses. Generally not available today.

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Review Chart on Homeowners Property Forms


Perils covered for Homeowners
HO-2 Broad Form
Fire Lightning Internal explosion plus Extended Coverage plus Broad Form Additional Perils: Burglar damage Ice & snow weight Glass breakage Accidental discharge Falling objects Freezing of pipes Electrical damage Tearing apart

HO-3 Special Form


All Perils On Dwelling Except Those Excluded with Broad Form perils on personal property plus THEFT

HO-4 Tenant or Renter


Broad Form On Personal Property Only

HO-6 Condominium unit owner


Same as HO-4 with Broad Form On Personal Property Only Broader Additions And Alterations

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Policy Sections of an HO Policy


Section I - Property
Section l (Property) of a Homeowners policy subdivides the property insured into four distinct coverages: Coverage A - Dwelling Coverage B - Other Structures Coverage C - Personal Property Coverage D - Loss of Use

Coverage A - Dwelling Covers the dwelling, structures attached to the dwelling, and materials and supplies located on or next to the dwelling that are being used for construction, alteration or repair. Example: The insured installs built-in cabinets, vanities and wall to wall carpet. These items are generally not considered contents and will be covered only as alterations and additions to the dwelling. Coverage B - Other Structures Provides protection for structures on the premises that are detached from the dwelling, like a tool shed or a garage. Coverage does not apply to land or structures that is used for business, or is rented to anyone other than a tenant of the dwelling, unless it is a garage. HO-4 does not include Coverage A or Coverage B since only renters and tenants can insure their personal property. HO-6, the Condominium form, includes limited Coverage A for: o Alterations, appliances, fixtures and improvements that are part of the building containing the residence premises. o Property that is the insureds responsibility under a condo association agreement. o Items of real property pertaining solely to the residence premises. o Structures other than the personal residence owned solely by the insured at the location of the residence premises. The standard Coverage A limit for the HO-6 is $1,000.

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Coverage C - Personal Property Provides protection for personal property t is owned or used by the insured anywhere in the world. Covers personal property at a secondary residence. Coverage for personal property is available for property owned by others including guests or residence employees, as long as the premises are occupied by the owner, guests or residence employees. Coverage is up to 10% of the Coverage C limit or $1,000, whichever is greater. This limit does not apply to property being moved from the residence premises to a new principal residence. In that case full coverage applies for 30 days from the start of the move.

Exclusions The following personal property is not covered under Coverage C: Animals, birds and fish Aircraft and parts Autos or motorized vehicles, unless used to service the premises Property of boarders who are not related to the insured Property in an apartment held for rental by the insured Paper or electronic records containing business data, except for prerecorded programs purchased on the retail market Credit cards

Special Coverage C Limits A specific dollar amount maximum applies to each of the below named categories of personal property. These limits can be raised by endorsement. Money, including coins and precious metals - $200 Securities, accounts, deeds and other valuable papers - $1,000 Watercraft, including trailers and equipment - $1,000 Stolen firearms - $2,000 for loss by theft Stolen jewelry, furs and precious stones - $1,000 total for loss by theft Stolen silverware, goldware or pewterware - $2,500 Property on the premises used for business purposes - $250

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Loss of portable electronic apparatus in, on or away from autos. This includes a car phone or portable CD player, provided the device can be operated by both the vehicles power and other power sources - $1,000

Coverage D - Loss of Use When the insureds premises are unfit for habitation, Coverage D reimburses for the additional living expenses of living elsewhere and for fair rental value of the insureds premises, should any portion be rented. Coverage D limits are written as a percentage of Coverage A under the HO-2, HO-3 and HO-8; and a percentage of Coverage C under the HO-4 and HO-6. Example: After receiving a call from the fire department, Jenny Smith rushed home to find her house seriously damaged by fire. Coverage D will reimburse her for the additional cost of living elsewhere, as well as the income she has been receiving from a renter who lives upstairs, up to the limits under her policy. Additional Loss of Use coverages are available, including: Inflation Guard Endorsement, which automatically increases the coverages under A, B, C and D on a regular, periodic basis. Replacement Cost for Personal Property that pay for the full cost of the repair or replacement of the damaged personal property. Available as a rider to all HO policies. Property not eligible for Replacement Cost includes: o Antiques and fine art o Souvenirs and collector items o Outdated or obsolete articles o Articles not in good condition

Section l - Additional Coverages


In addition to the major Section l - Coverage A through D, all Homeowners forms provide additional coverages with no additional premium, unless otherwise noted. These include: Debris Removal: Pays for removal of debris if a covered peril causes a loss. Debris removal is included in the limit of liability applying to the damaged property. If that limit is exceeded, an additional 5% of the limit of liability is paid. Cost of Reasonable Repairs: Pays to temporarily protect the property from further damage.

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Trees, Shrubs And Plants: Pays for losses to plants on the premises caused by covered perils - up to 5% but no more than $500 per tree, shrub or plant. Fire Department Service Charges: Pays up to $500 when the fire department is called to fight a covered peril. Property Removed: Covers property against direct loss from any peril while it is being removed from a premise that is endangered by a covered peril. Coverage lasts for up to 30 days while the property is removed. Example: After a storm damages her roof, a homeowner removes property stored in an unused bedroom. Her removed property is covered during transportation and while it is in storage, for up to 30 days.

Credit Card Forgery and Counterfeit Money: Pays up to $500 due to the theft or unauthorized use of an insured check or negotiable instrument. Also protects against forgery of any check, as well as losses sustained from unknowingly accepting counterfeit currency. Loss Assessment: Pays up to $1,000 charged by a corporation or association for a direct insured loss to property collectively owned by all members. Landlords Furnishings: If the insured is also a landlord, this provision pays up to $2,500 for appliances, carpeting and other household furnishings in a rented apartment on the residence premises.

Section l - Additional Coverages Exclusions


The following are excluded from Section I Homeowners coverage because they are generally not insurable risks. An ordinance or law that reduces value or takes property by governmental authority Earth movement Water damage from external sources, like floods or sewers Power failure Neglect to protect property War Nuclear hazard Intentional loss by, or directed by an insured with the intent to cause loss Defective planning or design

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Earthquake Coverage
HO policies generally exclude coverage for earthquake losses, but it can be added by endorsement. Costs depend on the homes construction. Frame houses are less expensive than masonry.

Section l - Additional Conditions of the Policy


Limits of liability defines the maximum amount the insurance company will pay for a loss, or for losses sustained during a period of time. This is also known as the Policy Limit and Limits of Coverage. Responsibilities of the Insured. After a loss the insured must: o Notify the company or agent promptly. o Notify the police in the event of a theft. o Notify the credit card company. o Take reasonable steps to protect the insured property from further damage. o Make reasonable and necessary repairs to protect the property. o Keep records of repairs. o Prepare an inventory of damaged personal property. o Cooperate with the company by showing damaged property records. a o Submit a proof of loss within 60 days of the insurers request. Loss settlement rules. Personal property losses are settled on an actual cash value (ACV) basis, although the homeowner may purchase a replacement cost endorsement that covers the cost of replacing the item without any deduction for depreciation. Buildings insured under Coverages A and B are settled on a replacement cost basis, subject to an 80% coinsurance requirement. Loss to a pair or set. Describes procedure for reimbursement when one item of a pair or set is damaged or destroyed. Glass replacement. Specifies requirements for glass replacement with safety glazing materials. Appraisal. Provides a process for determining appraisal in the event of a disagreement between the policyowner and the insurer. Pro Rata Liability for other insurance. Suit against insurer requires that all policy provisions have been complied with, and the suit is filed within a specified period after the loss typically one year.
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Abandonment of Property is not allowed by the insured, A Mortgage clause acknowledges the insurable interest of the person who holds the mortgage. The mortgagees insurable interest in a dwelling is the amount of money owed by the insured on the dwelling. No Benefit to Bailee. A bailee is a holder of goods. Insurers do not cover a person or organization that moves or stores property for a fee. Nuclear Hazards are excluded. Recovered Property can be kept or turned over to the insurance company.

Section II Liability
Home owners have tremendous liability exposure: A visitor falls on the sidewalk and breaks his leg; a dead tree falls on the neighbors house and destroys her new roof; the family dog bites an unwary jogger or, worse, little Johnny trips the poor runner as a joke. It gets worse. The homeowner goes to a football game and it starts to rain. When he opens his umbrella, one of the metal tips pokes the person in the next seat in the eye. Life is risky, but insurance was created to handle risk. A home owners responsibility to the general public is insured through Coverage E - Personal Liability, and Coverage F Medical Payments to Others. Coverage E - Personal Liability Coverage E Covers bodily injury or property damage if someone is inured on the insureds property and the insured is found liable. Minimum limit of liability is $100,000, but it may be increased with additional premiums. Coverage is for nonbusiness activities. The insured includes the named insured and all related residents of the same household and residence under 21 in the care of any member of the named insureds family. Coverage E defines the conditions of coverage, including the personal activities of the insured on or off the insured premises, and the actions of an employee who lives at the insured location in the course of employment. Coverage E Definitions and Conditions Bodily injury (BI) liability includes bodily harm, disease or sickness, even when it results in death. Property damage applies to the physical injury or destruction to tangible (real) property, including its loss. Property Damage (PD) liability is covered in the course of the insureds personal, non-business activities that occur anywhere.

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Provides a legal defense at the insurers choice, even if the suit is groundless, false or fraudulent. Coverage E is in effect for bodily injury or property damage arising from insured locations including: o Premises described in the Declarations o Newly-acquired residences o Vacant land owned or rented by the insured o Insureds land on which a residence is being built o Locations where an insured is temporarily residing o Locations an insured is renting for non-business use o Cemetery plots or burial vaults

Coverage F - Medical Payments to Others Coverage F pays for medical expenses incurred within 3 years due to bodily injury to individuals who do not live at the residence. The expenses are paid, regardless of whether or not the insured is liable for the injury. The maximum medical limit of liability is $1,000, but limits may be increased by paying more premium. Coverage F is not limitless but will generally pay for injuries Sustained while the injured party is on an insured location with any insureds permission Sustained while the injured party is off the insured location if the injury arises out of a condition that: o Occurred on the insured premises o Involved an activity of the insured o Was caused by a residence employee - a live-in maid, for example - in the course of employment duties o Was caused by an animal owned by, or in the care of, any insured Coverages E and F Exclusions Some instances of Bodily Injury (BI) and Property Damage (PD) are not covered by either Coverage E or F. Exclusions include: BI and PD arising out of the rental of any part of the premises, unless the rental is part of an insureds residence. Liability for injury or damage that is expected or intended by the insured.

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BI or PD arising out of business pursuits, or the rendering of - or failure to render - professional services. There is no mixing of personal and business liability. BI that is covered under a Workers Compensation policy. Liability arising out of ownership, maintenance, use, loading, or unloading of aircraft, watercraft, or motor vehicles. Liability arising out of war and war-like acts, such as insurrection and rebellion. Liability arising out of sexual molestation, corporal punishment or physical or mental abuse. Liability arising out of the transmission of a communicable disease by an insured. Liability arising out of the use, sale, manufacture, delivery, transfer, or possession of a controlled substance not legitimate prescription drugs.

Section II - Comprehensive Personal Liability Additional Coverage


Claims Expenses: In addition to the limit of liability, expenses are paid for: o The cost of investigating a claim. o Premiums for bonds required in a suit the company decides to defend. o Reasonable expenses incurred by the insured. o Interest on judgment which accrues after the entry of the judgment. First Aid Expenses: Does not pay expenses for first aid to the insured, but does pay expenses incurred by an insured in the course of giving first aid to others. Damage to Property of Others: The company will pay the replacement cost of others property damaged by an insured, up to $500 per occurrence. Loan Assessment: Pays $1,000 per occurrence for the insureds share or assessment as a member of a group of property owners for liability arising from an act of a director, officer or trustee.

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Section II Conditions
These conditions apply to both Sections I and II: There is coverage only during the policy period. No coverage for insureds who intentionally conceal or misrepresent any material fact relating to insurance coverage. Waivers must be in writing to be effective. The following cancellation rules apply: o The insured can cancel the policy at any time. o During the first 60 days, the insurance company can cancel the policy for any reason, with 10 days written notice to the insured. o After 60 days, the company may only cancel for the following reasons: Material misrepresentation by the insured. This requires a 30- day written notice. Substantial change in risk to the insured. Also requires a 30day notice. Nonpayment of premium. Requires a 10-day notice.

Endorsements
Homeowners policies are designed for the average homeowner. Some homeowners, however, have special needs that can be addressed with endorsements that modify coverage under Sections I and II.

Section I Endorsements
Scheduled Personal Property: This endorsement provides a separate schedule of insurance for one or more of nine categories of valuable property, including: o Jewelry o Cameras, projectors, films and equipment o Golf equipment o Furs o Musical instruments o Silverware o Coins o Fine arts o Postage stamps

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Personal Property Coverage Endorsement (HO-15). This endorsement, which can only be used with the HO-3, insures personal property on an open peril basis. Personal Property Replacement Cost. Policy will reimburse losses of personal property on a replacement cost basis rather than actual cash value. Permitted Incidental Occupancies. This endorsement overrides exclusions on standard Homeowners forms so the insured can enjoy coverage of business activities conducted on the residence premises. This means the insured can: o Use the residence for business purposes. o Overcome the $2,500 coverage limit for furniture, supplies and other business property used in the residence for the business listed in the endorsement. o Enjoy business-related liability and medical coverage not permitted by the Section II exclusion.

Earthquake endorsement. Home Day Care Coverage: Extends Homeowners coverage to a home day care business. The premium for this coverage is based on the number of children cared for by the insured.

Section II Endorsements
Business Pursuits Endorsement. Provides liability coverage for a business conducted away from the residence premises. Personal Injury Endorsement. Modifies the definition of bodily injury to include personal injuries such as libel, slander, false arrest, invasion of privacy and malicious prosecution.

Mobile Homes Coverage


Due to their high exposure to risk and loss, mobile homes are excluded from standard Homeowner policies, but the MH-200 endorsement can be added to an HO-2 or HO-3 policy. The mobile home endorsement is available for a home that is at least 10 x 40 feet and designed for year round living. If the mobile home is permanently fixed on a foundation, a dwelling policy can provide coverage. Because of depreciation, losses are always based on actual cash value rather than replacement value.
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The mobile home package policy offers the Broad form of All Risk coverage for the following: Mobile home, including all equipment Built-in accessories Additional structures such as awnings, carports and shelters Collision (optionally available) Additional living expenses

This concludes lesson two. Return to your online course player to take the Lesson Quiz.

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Lesson 3: COMMERCIAL LINES


This lesson focuses on the following topics: Introduction to Business Property Insurance Commercial Property Policy Defined Commercial Building and Personal Property Form Additional Coverages (In addition to basic coverages) Coverage Extensions Optional Coverages Causes of Loss Form Business Income Coverage Forms Additional Business Income Coverages Boiler and Machinery Coverage Forms Business Owners Policy (BOP) Comparing the Business Owners Policy and the Business Personal Property Form Business Owners Property Forms Business Personal Property Coverage Additional Coverages (Standard and Special forms) Special Property form Additional Coverages Coverage Extensions Optional Coverages Supplementary Payments Businessowners Exclusions Businessowners Endorsements

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Introduction to Business Property Insurance


Business property policies are more customized than life insurance policies. Even though life policies offer a variety of riders, options and add-ons, they do one clear thing -provide a death benefit when the insured dies. By contrast, commercial policies offer enough coverage options to make a new professional agent dizzy. The industry has simplified things for you by grouping coverages into forms. Lets get started.

Commercial Property Policy Defined


A Commercial Property policy provides coverage on real property, including office buildings, factories and warehouses. It also provides coverage for any business-related personal property located in those buildings, such as furniture, fixtures, machinery and inventory. Various coverage forms explain what property is covered and the provided coverages.

Commercial Building and Personal Property Form


Building Coverage
It is comprehensive and includes: All buildings Additions under construction Extensions to the buildings Permanent fixtures Machinery and equipment Personal property used to maintain or service the premises, such as fire extinguishers Outdoor furniture, floor coverings and certain appliances Alterations or repairs to the building, including materials, equipment, supplies, and temporary structures within 100 feet of the described premises

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Business Personal Property


It refers to portable property owned by the insured business and used in the business operation. Business personal property is covered while the property is in the building, in the open, or in a vehicle within 100 feet of the premises. Coverage extends to: Goods for sale Furniture Fixtures Office equipment Machines All other property used in the business Property owned by others in the custody of the insured, or within 100 feet of the premises. Raw and finished materials Leased personal property

Property Not Covered The Commercial Building and Personal Property coverage form will NOT cover property that is covered by other policies. Thats just common sense, and so are the other exclusions: Money and other valuables Animals - the companys pet dog is not covered, but animals that are boarded on the premises, or for sale, are covered Building foundations Automobiles held for sale Bridges and roadways Contraband being illegally transported Cost of excavations and grading Pilings and docks Underground pipes, flues and drains Land, crops and lawns Personal property that is lost while being carried in an airplane or on a boat

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Additional Coverages (In addition to Basic Coverages)


In addition to basic coverages, the Commercial Building and Personal Property policy covers expenses for: Preservation of the property to prevent further damage Removal of debris Clean up and removal of pollutants - usually up to $10,000 per policy period Service charge from the Fire department - typically up to $1,000 maximum Pollutant clean up and removal - up to $10,000 per policy period

Coverage Extensions
Coverage extensions are available if the insured agrees to an 80% or higher coinsurance feature. Newly Acquired or Constructed Property It is covered up to 25% of the policy amount, or a maximum of $250,000 per building. This extension protects property that is under construction on the premises and buildings at another location that will be used for the same purpose as existing building or warehouse. In the case of a new location, business personal property is covered for up to 30 days up to 10% of the policy or a $100,000 maximum limit. Personal Effects and Property of Others The personal effects and property of the insureds employees, officers and partners is covered up to a maximum of $2,500. Valuable Papers and Records Researching, replacing or restoring lost information can be an expensive proposition. This extension provides up to $2,500 for the cost restoring data onto magnetic media and electronic storage devices at each premise described in the policy. Property Off-Premises Covers off-premises property to a maximum of $10,000, with some exceptions. Coverage does NOT apply to: Stock that has been damaged or destroyed by a covered peril. Property in a vehicle. Property in the care or control of an insureds salesperson. Property at any fair or exhibition.

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Outdoor Property Up to $1,000 can be applied to cover typical outdoor items like fences, antennas, signs, trees, and plants destroyed by perils like fire, lightning, explosion, riot or aircraft. A maximum of $250 can be applied per plant or shrub.

Optional Coverages
For an additional premium, policy owners can choose various optional coverages. To be activated, optional coverages must be listed in the Declarations section of a Building and Personal Property policy. Agreed Value Coverage This coverage suspends the coinsurance requirement and substitutes an agreement to cover any loss in the same proportion that the limit of insurance bears to the stated value. Example: If the stated loss of the property is $60,000 and the policy limit is $60,000, the entire loss (100%) will be covered. If the limit of coverage is $30,000, only 50% of any loss will be covered. The insured is required to submit a form stipulating the value of the property. Inflation Guard Coverage This optional coverage raises coverage limits to compensate for inflation. Heres how it works. The policy owner and the insurance company agree on an annual percentage increase on insurance limits. Example: if 7%, is selected, the total limits of insurance will gradually increase on a pro rata basis until, the available limit is 7% higher at the end of the year than at the beginning. Replacement Cost Coverage This coverage overrides Actual Cash Value (ACV) in the Valuation condition which will be discussed in more detail in a future chapter. The company agrees to pay for loss or damage to covered property on a replacement cost basis, with the exception of certain property listed in the provisions.

Causes of Loss Form


The Causes of Loss form states what perils are insured against and also lists specific exclusions. The four Causes of Loss forms - Basic, Broad, Special and Earthquake- describe the perils that apply to the covered property.

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Causes of Loss - Basic Form


It provides coverage against the following perils: Fire Lightning Explosion Vehicles Windstorm or hail Smoke that causes sudden and accidental loss or damage Aircraft or vehicle damage Riot or civil commotion Vandalism Sprinkler leakage from an automatic sprinkler system Sinkhole that collapses into underground empty spaces Volcanic action

Basic Form Exclusions Earth movement Ordinance or law Government action Nuclear hazard War Failure of power or other utility services occurring away from the insureds premises Water, including flood, sewer backup, mudslides, or seepage or ground water Rupture or bursting of water pipes other than sprinklers Leakage or discharge of water or steam resulting from breaking of water or steam system or appliances Explosions of steam boilers, pipes, engines or turbines Mechanical breakdown

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Causes of Loss - Broad Form


It covers all of the perils listed in the Basic Form plus the following: Falling objects - but does not cover interior damages, unless damages first occur to the outside Weight of snow, ice or sleet Water damage caused by accidental discharge or leakage from a system or appliance Building collapse caused by: o Hidden decay o Any of the perils listed in the policy o Weight of people or property o Weight of rain or snow on the roof o Defective materials or methods used in construction or remodeling

Causes of Loss - Special Form


The Special form provides open perils coverage of any direct physical loss unless it is excluded or limited. Because there are so many open perils, the list of exclusions is extensive. Following are a few examples of Special Form exclusions of losses caused by: Compliance with an ordinance or law Settling, cracking, shrinking or expansion Bad business decisions Mechanical breakdown Dishonest or criminal acts by the insured or the insureds employees Rain, snow, ice, or sleet damage to personal property that is not in a building Voluntary choice to part with property as part of a fraud directed against the company Damage caused by insects, birds, rodents or other animals, unless the damage contributes to a building collapse Loss resulting from acts or decisions, or the failure to act or decide Faulty planning, development, design or workmanship

All property is subject to some wear and tear. If a loss is foreseeable, it is generally not covered, even under the Special Form.

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Business Income Coverage Forms


Business Income Coverage is a type of time element coverage because it pays for the loss of income sustained over a period of time, because an insured peril forces suspended operations during the period of restoration. Lost income is defined as the net income or pretax profit a business would have earned, plus the cost of normal continuing operating expenses and payroll. Business Income Coverage only kicks in when business activities are interrupted because of direct physical damage to property, and the interruption was caused by a peril covered in the Causes of Loss form. The period of restoration begins on the date the property damage occurred and ends on the date when the property should be repaired to similar quality with reasonable speed. There are two Business Income forms: Business Income With Extra Expense Business Income Without Extra Expense

Business Income with Extra Expenses Coverage Form


Extra Expense Coverage only covers expenses necessary to remain in operation that would not have been necessary if the property hadnt been damaged. For example, the insured may need to rent temporary office space to continue the business and reduce further losses. Two conditions apply to Extra Expenses Coverage: Limits must be stated in the Declarations form. Recovery limits vary depending on the period of restoration.

Example: Limits of 30% / 75% / 100% mean that if the period restoration was: 30 days or less -30% of the full amount of insurance will be paid. 31-60 days - 75% of the full amount of insurance will be paid. Over 60 days - 100% of the full amount of insurance will be paid.

Business Income without Extra Expenses Coverage Form


The Business Income without Extra Expenses form covers expenses made to reduce loss; up to the amount the loss is reduced.

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Example: A-1 Kite Makers, Inc. sustained extensive damage when a windstorm roared through the valley and ripped off its roof. Their Business Income without Extra Expenses coverage reimbursed A-1 for business losses during the period it was closed, but did not reimburse for extra expenses to stay in operation during the restoration period.

Rental Value
Rental value coverage includes the total anticipated rental income from a Tenant. With either of the two Business Income Expense forms the insured can choose: Business Income coverage, including Rental Value coverage Business Income coverage, without Rental Value coverage Rental Value coverage only

Additional Business Income Coverages


Civil Authority This policy provision covers loss of business income and extra expenses for a period of up to two weeks when the losses are due to the action of a civil authority. Alterations and New Buildings Replaces business income lost when a covered peril damages: New buildings Machinery Equipment Construction supplies Alterations Certain other losses

Certain other losses may be covered if they are related to the occupancy of new buildings. Extended Business Income Extended Business Income automatically extends the period of restoration for up to an additional 30 consecutive days to cover loss of earnings, as long as the policy limits have not been exhausted.

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Optional Coverages
Some optional coverages will reduce premium rates, while others will increase them. Maximum Period of Indemnity Limits reimbursement for loss of business income to no more than the amount of loss incurred during the first 120 days following a direct loss. Extended Period of Indemnity This gives the insured extended business income coverage for the number of days stated in the Declarations, rather than the 30 days allowed by the Extended Business Income Additional coverage. Monthly Limit of Indemnity Allows the insured to establish the amount of reimbursement for loss of business income during each 30-day period. Commercial Package Policy (CPP) Unlike monoline" policies that provide single coverage a Commercial Package Policy (CPP) bundles several lines of business coverage. The CPP package approach streamlines and standardizes the process of choosing the right coverage for every business client. In fact, a CCP can be customized to cover nearly every commercial risk. A CPP must contain the Common Policy Declarations Form, the Common Policy Conditions Form and at least two of the following lines of coverage: Boiler and Machinery Commercial Automobile Commercial Property Commercial Crime Commercial Inland Marine Farm Coverages Commercial General Liability Pollutant Liability Professional Liability Employment Practices Liability

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Boiler and Machinery Coverage Forms


Boiler and Machinery Coverage protects against losses from steam pressure Equipment, which includes that actual boiler and associated machinery. Unfortunately, boiler accidents can result in substantial losses in lives and money. To help reduce the risk, engineers have developed a boiler inspection service, and they guarantee their work by offering insurance against losses that may occur in spite of careful inspections. This is known as Boiler and Machinery insurance sometimes it is called Machinery Breakdown Insurance. A Boiler and Machinery policy can be written by itself or in conjunction with a broader commercial line property coverage policy. If written on a specific basis, each insured boiler or machine is listed and described in a schedule, which is then attached to a policy. If written on a blanket basis, all boilers and machines of a certain class are insured.

Coverage
The insured must own the steam boiler or machinery, be legally liable for it, and have it in the insureds care, custody or control. Objects of the same type are automatically covered at new locations for up to 90 days. The policy can be written to pay for (1) direct damage to listed property, (2) damage to other property, (3) interruption of business losses, or all three. Boilers and machines are covered for losses due to an accident -a sudden and accidental breakdown of the insured boiler or machine -that requires repair or replacement of the boiler or machine. An accident does not include: o Wear and tear o Depletion o Deterioration o Depletion o Corrosion o Erosion o Leakage of a valve

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o Breakdown of tubes o Breakdown of electronic computers o Breakdown of structures or foundations supporting the boiler or machine o Malfunctioning of any safety device o Explosion of gas or unconsumed fuel within the furnace or any of its passageways Expediting Expenses Coverage It reimburses the insured for any reasonable extra expenses involved in making temporary repairs, and for expediting the repair of damaged property. Examples can include employee overtime and the extra cost of express shipments. Policy limit is $5,000. Defense, Settlement and Supplementary Payments Coverage It pays costs of legal fees, interest on judgments, and premiums for appeal bonds. Settlement paid under this coverage is in addition to the face amount of the policy. The Inspection Service is provided free of charge by the insurance company. An inspector can shut down an unsafe boiler or other machinery and the company may suspend coverage for damage caused by the faulty equipment until it is repaired.

Boiler and Machinery Policies for Small Businesses


The Basic Form may be written for small businesses with boilers and/or machines valued at $5 million or less. Typical small business clients include banks, schools, office building, restaurants, funeral homes and churches, among others. The Broad Form expands eligibility requirements to include smaller air conditioning systems, boilers, air conditioning and refrigerator systems, and mechanical or electrical equipment that maintains or serves the premises.

Business Owners Policy (BOP)


The BOP is a commercial policy for small and medium sized businesses. The idea behind the BOP when it was created in the 1980s was a complete, selfcontained insurance package that combined a range of coverages for a low premium.

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The standard package of coverages for property includes: Building Business Personal Property Business Income and Extra Expenses

The package of coverages for liability includes: Bodily Injury and Property Damage Personal and Advertising Injury Fire Legal Liability Medical Expenses

BOP Eligibility
The BOP is available for these classes of business: Retail Offices Services Apartments Wholesale distributors Contractors Small restaurants

Some nonprofits may qualify under the office classification. The ideal BOP prospect is a small, well-managed, one-location business with predictable coverage needs and limited off-premises business activities.

Comparing the Business Owners Policy and the Business Personal Property Form
The BOP is a package policy that provides a wider range of coverage at a cheaper cost than the BPPF. The BPPF provides a set amount of coverage that must be built upon to meet the needs of most policy owners.

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The BOP is a multi-peril policy that includes basic property and liability coverages. Optional coverages allow an insurance professional to design a policy customized for each small business. The Business Owners Declarations for a BOP and a Commercial Package policy are similar. Eligibility rules for a BOP are more stringent than those for the CPP. BOP policies typically cover a business with annual revenues of $3 million or less, occupying an area of up to 25,000 square feet, or an owned building of up to 100,000 square feet and less than six stories. The following businesses are not eligible for a BOP: Places of amusement Service stations Auto repair centers Wholesalers Contractors Banks and other financial institutions Bars Household personal property is also excluded from BOP coverage.

Business Owners Property Forms


Like the Commercial Property forms already discussed, BOP forms come in two flavors- the Standard form and the Special Property form. Most coverages are identical except for covered causes of loss. The BOP Standard Property Form contains the basic coverages found in other commercial forms. It insures against the following perils: Fire Lightning Explosion Windstorm or hail Sprinkler leakage Smoke

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Aircraft or vehicles Riot or civil commotion Vandalism and malicious mischief Sinkhole collapse Volcanic action Transportation damage to property in transit.

The Business owners Special Property form provides All Risk or Open Peril coverage. Optional Coverages They are available for: Various crimes, including employee dishonesty, forgery or alteration Money and securities, both inside and outside the premises Outdoor signs Computer Exterior grade floor glass Mechanical breakdown

Building Coverage Both Business owners Property forms provide coverage for buildings and business personal property. Coverage for buildings includes: Completed additions Permanently installed machinery and equipment Fixtures Personal property owned by the insured used to maintain or service the building, including: o Fire extinguishing equipment o Outdoor furniture o Appliances used for refrigerating, ventilating, cooking or laundering o Floor coverings Personal property furnished by the insured in apartments or rooms rented to others

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If no other insurance applies, then the following are also usually covered: o Alterations and repairs to the buildings or structures o Additions under construction o Materials, equipment, supplies and temporary structures that are on or within 100 feet of the premises and being used for additions, alterations or repairs

Business Personal Property Coverage


To be eligible, business personal property must be located at the described Premises -either in or on the building - in the open, or in a vehicle within 100 feet of the premises. Four classes of business personal property: 1. Property owned and used by the insured in the business, such as inventory 2. Property of others in the insureds care, custody or control, like business equipment rented by the insured for business use 3. Tenants improvements made at the tenants expense to a building the tenant occupies but does not own, and which cannot legally be removed 4. Leased personal property that the insured has a contractual responsibility to insure - computers and copy machines, for example Property Not Covered Motor vehicles Aircraft Land, water, crops and lawns Outdoor fences, trees, shrubs and plants, except as covered under a coverage extension Contraband and property illegally traded or transported Outdoor radio or television antennas Satellite dishes and lead in wiring Money and securities Watercraft while afloat Outdoor signs not attached to buildings

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Additional Coverages (Standard and Special Forms)


Both the Standard and Special Property forms provide the following additional coverages: Debris Removal It pays up to 25% of the amount paid for the direct physical loss. Preservation of Property It Covers loss from any cause of loss to property that was removed from the insured location to protect it from damage by a covered peril. Also applies while the property is being moved or while it is temporarily stored at another location, but only for 30 days after the property is first moved. Business Income Loss of income the insured sustains due to a direct physical loss from a covered peril that forces the insured to suspend business operations. Extended Business Income Loss of business income, even after operations have been resumed, until the business has been fully restored to its previous earnings level, but for no more than 30 days from the date the business is resumed. Pollutant Cleanup and Removal It Provides up to $10,000 coverage for the costs to extract pollutants from land or water at the insureds premises as a result of a covered loss. Extra Expense For additional costs incurred to avoid or minimize suspending business operations after a covered loss. Money Orders and Counterfeit Paper Currency Loss incurred when an insured accepts money orders and counterfeit paper currency in good faith in exchange for merchandise, money or services. Forgery and Alteration It covers loss from forgery of checks, drafts and similar items made or drawn by or on the insured or the insureds agent. Increased Cost of Construction Pays up to $5,000 for additional costs required to comply with ordinances or laws related to repair or replacement of damaged buildings. Covers only those buildings insured on a replacement cost basis. Exterior Glass Covers damage to exterior building glass.

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Special Property form Additional Coverages


These additional coverages are only included in the Special Property Form: Collapse Covers damage to covered property caused by the collapse of an insured building, if the collapse is caused by a specified peril. Water or Other Liquid Covers loss to a building that indirectly results from the escape of water or other liquid or power, including costs to tear out and replace any part of the building to repair damage to the system from which the material escaped.

Coverage Extensions
Coverage extensions in both Property forms allow the insured to extend the insurance for specified purposes. The extensions generally include a higher limit of liability. Business Personal Property at Newly Acquired Premises It covers personal property that is moved to premises the insured acquires during the policy term. Maximum limit is $100,000. Business Personal Property off Premises It covers business personal property while it is in transit or temporarily located at premises not owned, leased or operated by the insured. A $5,000 limit applies. Outdoor Property Extends coverage by an average of $1,000 for outdoor property like fences, signs, trees, shrubs, plants, and radio and television antennas. A limit of $500 maximum per tree applies. Personal Effects Up to $2,500 in Business Personal Property coverage for personal effects owned by the insured and the insureds employees. Accounts Receivable Reimburses insured for money that cannot be collected from customers due to damage to the insureds accounts receivable records. Coverage is limited to $5,000 for records on the premises and $2,500 for records that are not on the premises.

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Valuable Papers and Records Pays costs to research, replace or restore information on lost or damaged valuable papers. Coverage is limited to $5,000 for papers and records on the premises and $2,500 for papers and records not on the premises.

Optional Coverages
Optional coverages usually require an additional premium. They include: Outdoor Signs It covers damage to all outdoor signs owned by, or in the custody or control of, the insured. Employee Dishonesty It covers loss to business personal property, money or securities that results from dishonest acts of employees. Interior Glass It covers loss to glass items that are permanently attached. Mechanical Breakdown It covers damage caused by sudden and accidental breakdown of boiler and pressure vessels. Burglary and Robbery (Standard form only) It covers burglary and robbery to business personal property, money and securities. The limit for business personal property is 25% of the business personal property limit shown in the Declarations. Money and Securities (Special form only) It covers loss of money and securities from theft, disappearance and destruction. The Business owner Liability Coverage form protects against loss from bodily injury, property damage and for personal and advertising injury. It also provides medical expense coverage. The standard Liability and Medical Expense limit of $300,000 is the most the insurer will pay for damages arising from one occurrence that results in bodily injury (BI), Property damage (PD) and medical expenses. It is also the limit for personal and advertising injury sustained by any one person or organization.

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Supplementary Payments
Supplementary payments are also included in the Business owners Liability form. Most of them are paid in addition to the policy limit. They include: Insurance company expenses in defending a claim or suit against the insured. Up to $250 for the cost of bail bonds related to violations that arise from vehicles. Cost of bonds to release attachments. Reasonable expenses insured incurs at the insurance companys request to assist in investigating or defending a claim or suit. Interest that accrues after a judgment is made and before it is paid. Costs insured is required to pay because of a suit.

Business owners Exclusions


Business owners Liability policies do not cover every possible claim. The following situations are excluded from coverage: Intentional injury Contract or agreement Alcoholic beverages distribution, selling and serving Work-related when Workers Compensation applies Transportation of mobile equipment by auto or by mobile equipment War Rendering or failing to render professional services Damage to property owned, rented or occupied by the insured or in the insureds care, custody or control Damage to insureds own work Recall of insureds products

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Business owners Endorsements


Business owners can choose add-on endorsements that extend coverage for specified situations, including: Utility Services Direct Damage Coverage Endorsement: Covers loss or damage to property caused by an interruption in water, communication or power supply. Utility Services Time Element Coverage Endorsement: Similar to above, except it covers loss of business income and extra expense that occurs, due to an interruption in utility service. Protective Safeguards Endorsement Requires insured to maintain protective devices listed on the endorsement on specified property as a condition of the policy. o P-1 - Automatic Sprinkler System o P-2 - Automatic Fire Alarm System o P-3 - Security Service o P-4 - Service Contract This concludes lesson three.

Return to your online course player to take the Lesson Quiz.

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Lesson 4: OTHER TYPES OF POLICIES


This lesson focuses on the following topics: Inland Marine Insurance Personal Floaters Commercial Floaters Flood Insurance Personal Watercraft Insurance Commercial Ocean Marine Earthquake Form Farm and Ranch Insurance The Basic Farm and Ranch Insurance Policy Covered Causes of Loss in Farm Insurance Policies Additional Coverages

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Inland Marine Insurance


Inland Marine Insurance is based on the Nationwide Marine Insurance Definition developed by insurance commissioners to identify six categories of eligible Marine risks: Imports Exports Personal property floater risks for movable personal property Domestic shipments Instrumentalities of transportation and communications such as bridges Tunnels, docks, pipelines, power transmission lines Commercial property floater risks for movable business property

The first two categories-Imports and Exports-are covered by Ocean Marine insurance, a policy that historically covered loss to movable property being transported on the ocean. These days, of course, those items could also be in transport in an airplane. Personal and Commercial Inland Marine Insurance policies evolved from Ocean Marine Insurance to cover Personal and Commercial properties that are in transit. They are called marine policies for historical reasons, but items insured under these policies may never come near the water. The next category-personal property floater risks-is covered by Personal Inland Marine insurance. A floater is coverage that floats around with movable property. The remaining three categories-Domestic shipments, Instrumentalities of transportation, and Commercial property floater risks-are eligible for Commercial Inland Marine insurance.

Personal Floaters
A floater is coverage on property that moves from one location to another. It is written on an all risk or open perils basis to cover all scheduled and unscheduled personal property. Think of a floater this way: a homeowners policy covers items that generally stay in the home; a floater covers items that are away from the home.

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Most personal floaters limit the insureds settlement to actual cash value at the time of loss, or the cost to repair or replace the property. The following perils are excluded from floater coverage: Wear and tear from ordinary use War Loss of market due to delay in delivery Flood Earthquake Dishonesty of employees

The following floaters must be attached to a valid Personal Inland Marine policy: A Personal Property Floater (PPF) covers all unscheduled personal property worldwide, on an all risk basis. A policyowner who wishes to only cover specific items can do so with an endorsement. A Personal Articles Floater (PAF) covers all risks from physical loss or damage to specified classes of property valued at $100 or more, like silverware, fine arts, camera and golf equipment. o The PAF may be written as a separate policy or attached to an existing policy. o The policyowner must provide a detailed appraisal of insured items. A Personal Effects Floater (PEF) provides unscheduled, all risk coverage for property normally carried by travelers. A PEF may be purchased for each trip or on a permanent basis. Exclusions include: o Property that is in the home or in storage; in other words, when the insured is not traveling. o Money and securities, tickets, passports and valuable papers o Vehicles-bicycles, motorcycles, boats, automobiles.

Commercial Floaters
Commercial floaters protect business property and equipment on premises and in transit. They can be written on a scheduled or a blanket basis for named perils, or for all risk of loss. The market offers commercial floaters designed for every conceivable business segment. Check out these examples, which prove the point that Business Property Insurance allows policyowners to carefully customize coverage:

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Transportation policies protect either the shipper or the carrier for loss to shipments in transit. Valuable Papers pays for the cost of replacing damaged manuscripts, books, drawings, maps and more. Bailee Coverage reimburses the insured for damage to a customers property that is in his or her care, regardless of whether the insured is liable for the damage, as long as the damage resulted from a covered peril. For example, a dry cleaning business is a bailee for clothes that are entrusted to its care on a temporary basis. The Neon and Electrical Sign floater protects against loss to neon and electrical signs, just like its name implies. A Physicians and Surgeons Equipment policy covers the loss of medical equipment. A Radium floater indemnifies against damage caused by the release of radioactive materials. A Salespersons Samples can be covered by a commercial floater. Installation risk (individual business interest in the property it owns and intends to install for purchase). A Contractors Equipment floater covers off-road heavy equipment. An Accounts Receivable floater insures against the inability to collect payments due the business. An Electronic Data Processing floater can protect against loss of data processing equipment or the loss of actual data.

Flood Insurance
Anyone who has lived through a flood has a detailed definition of one, but for insurance purposes, a flood is defined as a general and temporary condition of partial or complete inundation of normally dry land areas from the overflow of inland or tidal waters, or the unusual and rapid accumulation of runoff of surface waters from any source. Flood losses are generally excluded from most personal and commercial line policies. Luckily, National Flood Insurance, sponsored by the Federal Government through the National Flood Insurance Act of 1968, offers flood insurance to homeowners and businesses.

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Under the federal National Flood Insurance Program (NFIP), property owners may purchase flood insurance as long as their communities have met the minimum NFIP standards for land use and water control hazards. The program is managed by the Federal Insurance Administration (FIA) which is a branch of the Federal Emergency Management Agency (FEMA). Two Flood Insurance Programs

The Emergency program goes into effect when the community applies to the NFIP, and remains in effect until the government finalizes the Flood Insurance rates for that community. Under the emergency program, insureds may purchase limited amounts of Flood Insurance for buildings and contents at subsidized rates. o Policies include a standard minimum deductible of $1,000 for policies rated on the basis of subsidized rates. A higher deductible is available for a premium discount. Under the Regular Flood Insurance program, a property owner in an approved community is eligible for Flood Insurance to cover residential and commercial buildings and contents, and farms. o The standard deductible is $500, except for: Livestock Roads Gas and liquid storage tanks Wharves, piers and bulkheads Growing crops Motor vehicles

A higher deductible is available for a premium discount. In the event of loss, the insured notifies the agent who then notifies the NFIP. The insured must provide proof of loss. If the loss amount exceeds the amount of collected premiums, the FIA pays the difference. If the insurer collects more in premiums than it pays out in losses, the excess must be returned to the government.

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Personal Watercraft Insurance


Personal watercraft require a separate policy package because most standard homeowners policies exclude boats. Three Watercraft policies provide the necessary coverage: 1. Outboard Motor and Boat Insurance is an all risk, Inland Marine floater that covers physical damage to boats. Claims are usually paid on an actual cash value basis. 2. Boatowners/Watercraft Package Policies, also known as Boatowner policies, combine property coverage on an open peril basis, liability, and medical coverage. In. They usually insure boats under 30 feet with a maximum dollar value of $25,000. Again, losses are usually paid on an actual cash value basis. 3. A Personal Yacht Policy is a specialized form of Ocean Marine Insurance and is usually written for pleasure boats that exceed maximum size and other requirements for a Boatowners/Watercraft policy.

Commercial Ocean Marine


Commercial Ocean Marine insurance is the oldest form of property insurance. Commercial Ocean Marine policies protect against losses to the hull, cargo, and income, and also offer liability insurance.

Hull Insurance
Provides Physical Damage coverage for the ships structure while in transit on oceans, rivers and lakes. Offers coverage for a single vessel or an entire fleet. Limited liability insurance may also be included, providing protection for the negligent operation of a vessel and damages to another ship.

Cargo Insurance
Covers goods while they are in transit over water. Coverage is extended to include property from its point of origination to its point of destination and incidental travel on land. Coverage can be purchased for a single trip (voyage) basis. Importers and exporters can purchase open cargo insurance that covers all shipments by the insured.

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Freight Insurance
Protects against shipping costs losses. For example, if the owner of the cargo prepays shipping costs and the cargo is lost, the owner will lose the shipping charges unless they are covered by freight insurance. Freight insurance can be written separately or included with Hull or Cargo Insurance.

Protection and Indemnity Insurance (P&I)


Provides Marine Liability insurance to protect against liability for: Job-related injuries to a sailor Damage to other property or another boat resulting from collision. Damage to cargo through negligence. Damage to other property not caused by collision. Injuries to stevedores, longshore or harbor workers.

Characteristics of Ocean Marine Insurance


Ocean Marine Insurance can be issued on a named peril or open peril basis. Properties are subject to the normal variety of perils such as fire, explosion, leakage, damage and more. They are also subject to perils of the sea, which include: Unusual wind Unusual wave action Lightning Collision Sinking Jettison, which is voluntary action to toss the cargo over to prevent further peril and save the remaining cargo. Barratry-illegal acts committed willfully by the ships master or crew for the purpose of damaging the ship or its cargo.

Implied Warranties Given by the Insured


Ocean Marine insurers are dependent on warranties that are not written into the contract but are implied. A breach of any of them can void the contract. They include:

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Seaworthiness The vessel must be fit for the voyage, not overloaded, and carry a competent crew. Legality The trip must be for a legal purpose. Conditions of Cargo The cargo must be warranted to be sound and properly packed. No Deviation in Voyage The ship must follow an agreed route, with no changes in destination.

Earthquake Form
Because earthquakes are not listed as a common peril, Dwelling and Homeowners policies do NOT cover losses sustained from earthquakes. Many companies, however, will issue earthquake protection as an endorsement to a Dwelling or Homeowners policy, or as a separate policy. Earthquake insurance generally covers damage to a structure, its contents, or both as the result of an earthquake.

Farm and Ranch Insurance


Whatever else they represent, farms are also modern businesses, a perfect example of the complicated property coverage issues that require flexible insurance options. Even a small family farm may be owned by various family members, not all of whom live on the property, but some of whom help work it. Portions of that farm may be leased out to a neighbor who works the land for a percentage of profit. Or, a large commercial operation may own the land but contract a local farmer to manage it. Farms and ranches combine personal and commercial exposure, in various ratios. To make matters even more complicated, many farms and ranches operate businesses like horse raising or retail U-Pick operations that are not covered by traditional farm policies. All of this means that agents must listen and research carefully to understand the details of each farm situation, because some kinds of farm insurance, like the Farm Combination Coverage policy, are not available to those who dont work the farm.

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Insurance basics still apply to Farm insurance: The insured must have an insurable interest in the farm, whether the insured is a local owner or an absentee landlord, and risks must be carefully assessed to assure proper coverage.

The Basic Farm and Ranch Insurance Policy


A Farm policy is written by attaching a Farm Property Coverage Form to a Common Conditions form and a Declarations Page. The Farm Property Coverage Form is a standardized and simplified document that forms the core of either a monoline or a package Farm policy. It defines 7 areas of coverage (Coverages A through G), exclusions, and a menu of perils organized under the familiar Basic, Broad and Special coverage forms. For our purposes, we will focus on a typical Farm insurance policy that covers commercial farms owned and occupied by the insured, and examine the elements contained in the Farm Property Coverage Form.

Definitions
Farm Personal Property Includes equipment, supplies, and products of farming or ranching operations, including but not limited to: feed, seed, fertilizer, livestock, other animals, poultry, grain, bees, fish, worms, produce and agricultural machinery, vehicles, and equipment. Livestock Includes cattle, sheep, swine, goats, horses, mules, donkeys. Poultry Includes fowl kept by the insured for use or sale.

Farm Insurance Coverage a-Dwelling


Coverage A protects the: Dwelling and any structures attached to the dwelling. Materials on the premises intended for construction, repairs or building.

Building and outdoor equipment that is primarily used in service of the residence, including equipment that is temporarily located off-property.

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Exclusions under Coverage A includes: Land, including that upon which the dwelling is located. Water Trees, plants and/or shrubs

Note: For replacement cost coverage to apply, the policy must be written to protect against 80% of the dwellings replacement value.

Farm Insurance Coverage B - Other Structures in Addition to the Dwelling


Coverage B covers: Private, unattached garages that are being used strictly as garages. Private structures in addition to dwellings and/or garages that are separated from the dwelling by a clear space or attached by a fence, utility line, or other non-structural element.

Exclusions under Coverage B include: Land, including that upon which the dwelling is located. Water Rental structures that are being rented out by non-residences of the property. Structures whose principle use are for farming-related.

Coverage C-Household Personal Property


Coverage C covers: Household personal property owned or used by the insured while on the insured property. By request, personal property belonging to others when located on insured property.

Exclusions under Coverage C include: Aircraft and parts Trees, plants and/or shrubs Animals of any type Business property
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Storage media for electronic data Antennas, wires and/or any other type of media-producing item located in a motor vehicle or motorized machinery. Farm personal property, BUT any office-related items and furniture used in an on-premise office IS covered. Motor vehicles or motorized machinery and attending equipment and/or accessories, BUT, vehicles used strictly for residential service and/or assistance to the handicapped are covered.

Coverage D-Loss of Use


Additional Living Expense Is applied if a covered cause of loss results in an insureds dwelling or living quarters being uninhabitable. The policy pays for the increase in living expenses that allows the insured and the insureds family to continue their normal standard of living until repairs or replacements can be made. Fair Rental Value Is applied if a covered cause of loss leaves any portion of the residence premises uninhabitable for rental use. Note: If law enforcement or other authorities bar an insured from his or her living premises due to direct damage of a neighboring property, Coverage D will pay for additional living expenses or fair rental value for two weeks.

Coverage E - Scheduled Farm Personal Property


The following property is covered under this section, as long as a limit is specifically shown in the Declarations page: Grain, ground feed, silage, and manufactured and blended livestock feed in buildings or structures, sacks, wagons or trucks. Grain in stacks, shocks, swaths, or piles in the open are insured against losses by fire, lightning, vehicles, and theft. Hay, straw and fodder in buildings, structures, or bales are covered for losses by fire, lightning, windstorm, hail, vehicles, and theft. Farm products, materials and supplies shown in the Declarations. Poultry in an area designated in the Declarations for poultry. Computers and software used principally for farm management. Miscellaneous equipment common to the operation of a farm, such as machinery, vehicles, tools, and supplies.

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Machinery exclusions under Coverage E include: Heavy farm machinery: threshing machines, cotton pickers, tractors, combines, hay balers, corn pickers, harvesters, potato diggers and pickers, crop dryers, peanut diggers, or sawmill equipment. Any and all motorized vehicles primarily designed and licensed for road use, BUT farm wagons and farm trailers are not excluded. Watercraft or aircraft and its attendant parts and equipment. Fuel and its containers. Bulk milk tanks, bulk feed tanks or bins attached to buildings or structures; barn cleaners, pasteurizers or boilers; any permanent fixtures within or attached to buildings. Brooders or fences Windmills or their towers. Outdoor radio or TV equipment; private power and light poles. Irrigation equipment Portable structures Borrowed farm machinery, vehicles and equipment. But this does NOT include: o Motor vehicles primarily designed and licensed for road use-other than farm wagons and farm trailers. o Watercraft or aircraft and their attendant parts. o Dealers' demonstration machinery, vehicles or equipment. Farm machinery, vehicles and equipment away from the insured location Livestock on or away from premises Other animals, including bees, worms and fish.

Excluded property under Coverage E includes: Growing crops, trees, plants, shrubs, or lawns Household personal property Storage media for electronic data Permanent fixtures within or attached to a building Outdoor radio or TV equipment; private power and light poles

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Coverage F-Unscheduled Farm Personal Property


Unscheduled farm personal property any item of farm personal property on the insured property. It does not include items specifically excluded under Property Not Covered. The following items are covered while away from the insured location: Grain, feed, seeds, fertilizer, fodder, hay, herbicides, pesticides, silage, straw, except while at commercial drying plants, manufacturing plants, public elevators, seed houses, or warehouses Livestock except while in transit by common or contract carrier, at public stockyards, sales barns or yards, or at packing plants or slaughterhouses. Farm machinery, equipment, tools and supplies

Property excluded under Coverage F includes: Household or personal property common to a dwelling Storage media for electronic data Animals other than livestock, including poultry, bees, fish, or worms Racehorses, show horses or show ponies Grain, feed, seeds, fertilizer, fodder, hay, herbicides, pesticides, silage, straw, except while at commercial drying plants, manufacturing plants, public elevators, seed houses, or warehouses Trees, plants, shrubs, or lawn Cotton pickers and harvester-thresher combines Tobacco, cotton, vegetables, root crops, potatoes, bulbs, fruit, or nursery stock Crops in the open, except as provided under the extension of coverage to Coverage F Motorized vehicles primarily designed and licensed for road use, and watercraft or aircraft including their attendant parts and equipment Fences, windmills and their towers Irrigation equipment Any permanent fixtures within or attached to a building Outdoor radio or TV equipment Portable buildings or portable structures

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Coverage G-Other Farm Structures


Selected farm structures are subject to special Limits of Insurance. Buildings and structures, including attached sheds and permanent fixtures Portable structures Silos individually described in the Declarations Fences, corrals, pens, chutes, and feed racks-this does NOT include field or pasture fences Outdoor radio and TV antennas, masts, and towers Permanent improvements and betterments made to the described building, including additions, alterations, fixtures, or installations Materials and supplies for use in building, altering or repairing farm buildings and structures

Items excluded under Coverage G include: Land, including the cost of excavations, grading, filling, or back filling Water Field or pasture fences Foundations of buildings or below-ground structures Pilings, piers, wharves, or docks

Covered Causes of Loss in Farm Insurance Policies


Basic Coverage provides protection against: Fire or lightning Windstorm, hail, ice, snow or sleet Livestock or poultry are NOT covered under Basic when their loss caused by running into bodies of water or against fences or other objects, smothering, or injury resulting from fright Explosion Direct loss from volcanic action when loss is caused by airborne volcanic blast or airborne shock waves, ash, dust, particulate matter, or lava flow Riot or civil unrest, which includes acts of striking employees at the insured location, and looting occurring at the time of the riot or civil commotion
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Aircraft Vehicles Smoke, excluding that from industrial operations Vandalism Loss is excluded if the dwelling has been vacant for more than 30 days Theft, including attempted theft

Broad Coverage covers losses under the Basic form, plus the following: Electrocution of covered livestock Attacks on covered livestock (except sheep) by dogs not owned by the insured and wild animals. Accidental shooting of covered livestock, excluding damage caused by the insured, employees or other resident persons . Drowning of covered livestock. Loading/unloading accidents involving livestock. Broad coverage does not include loss caused by disease. Breakage of glass Falling objects Weight of ice, snow or sleet Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire protective system, or by an appliance for heating hot water, but not loss caused by or resulting from freezing. Accidental discharge or leakage of water or steam, excluding the cost to repair the defect that caused the leakage. Freezing of a plumbing, heating, air conditioning, automatic fire protective system or a household appliance. Sudden and accidental damage from artificially generated electrical current (applies to Coverages A, B, C and D).

Broad Coverage excludes losses while the property is vacant, unoccupied, or under construction, unless the insured uses reasonable care to maintain heat in the building or turn off the water.

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Special Coverage
Farm insurance offers multiple special coverage options, but the following are exclusions to special coverage in the Farm Property form: Fire, if related to curing or storing tobacco. Collapse, except as provided in the additional coverage entitled Collapse. Windstorm or hail to farm products in the open, or watercraft or their trailers, equipment and motors, unless in fully enclosed building. Rain, snow, ice, or heat to personal property in the open. Rain, snow, sleet, sand, or dust to the interior of a building unless the building first sustains wind or hail damage to roof or walls. Freezing or thawing, or pressure or weight of water or ice to foundations, retaining walls, pavements, swimming pools, docks, piers, or wharves. Discharge or overflow of water or steam from plumbing, heating, air conditioning, automatic fire protective systems or a household appliance. Freezing of plumbing, heating, air conditioning, or automatic fire protective system, unless the heat is maintained or the water is shut off.

General Exclusions
The following are excluded from coverage under the basic, broad, and general forms: Losses caused by enforcement of building ordinances or laws. Earth movement-but loss IS covered for any resulting fire or explosion. Volcanic eruption, except any resulting fire IS covered, as are the conditions listed under volcanic action in the Basic form. Governmental action, meaning the seizure or destruction of property by order of governmental authority. Intentional loss, meaning acts committed with the intent to cause a loss. Nuclear hazard Power failure War and military action Water, including flood, surface water, waves, tides, tidal waves, overflow of any body of water, or spray, mudslide or mud flow, water backing up from a sewer or drain, water under the surface of the ground.

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Additional Coverages
Collapse
Damage from partial or full collapse of a building is covered if the collapse is caused only by one or more of the following: Breakage of building glass Hidden decay Hidden insect or vermin damage Weight of people or personal property Weight of collected rain on a roof Use of defective material or methods if collapse occurs during the course of construction, remodeling or renovation

Other Coverages
Debris removal and fire service charges are covered under all Coverages, but wise insurance professionals will pay attention to the details of additional coverages, which can be confusing. Example: removal of fallen trees is possible under Coverages A, B, C and D, but coverage up to $2,000 to research and restore damaged data records is only available only with Coverages E and F. This concludes lesson four. Return to your online course player to take the Lesson Quiz.

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Lesson 5: POLICY PROVISIONS AND CONTRACT LAW


This lesson focuses on the following topics: Introduction Definition of the Insured Duties of the Insured Duties of the Insurer Mortgagee Rights Appraisal Other Insurance Assignment Subrogation Arbitration Elements of a Legal Contract Representations and Warranties Concealment Binder Sources of Insurability Information and Underwriting Fair Credit Reporting Act (FCRA)

Introduction
All insurance policies include certain definitions, statements of duties, and other items required to make a policy a legal contract. Insurance professionals will encounter these terms on a daily basis and have a legal and ethical duty to explain them to prospects and clients.

Definition of the Insured


You would think the insured is one term that needs no further explanation, but it does. One must be specifically named defined in every property and casualty policy. In order to recover covered damages, a party must be specifically named as an insured. Furthermore, the named insured must have an insurable interest in the property at the time of loss.

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In some cases, however, a person not specifically named in the contract still has recovery rights in the event of loss. A house guest, for example, is covered for specific loses under Dwelling and Homeowners forms.

Duties of the Insured


A legal contract imposes duties on the part of all parties. The insured, for example, must inventory the loss, provide proof of loss to the insurer within a reasonable time period - usually within 60 days - and make records pertaining to the loss available to the insurer. Other duties of the insured include: Immediately provide written or telephone Notice of Claim to the insurer. Prevent further losses in ways that are reasonably possible.

Duties of the Insurer


The insurer also has legal duties that are not only mandated in legislation, but closely monitored by state officials. We could sum them up by saying that insurance companies have a duty to do what they promise to do in the policy that is, provide repair or replacement cost - to do it fairly, in a timely fashion, and with due diligence in evaluating and settling claims.

Mortgagee Rights
The mortgagee - the bank or lender - stands to lose if a mortgaged property is damaged, and so has an insurable interest in that property. That means the mortgagee has the right to file a proof of loss within 60 days of receiving notice of the insureds failure to file. If the insurer decides to cancel or not renew the policy, the mortgagee must be given 10 days written notice

Appraisal
Imagine this scenario: Jane Business owner suffers a property loss when a very large tree smashes through the roof of her shipping department, destroys inventory and fork lifts stored inside as well as the oldest part of the building that had been turned into a shipping warehouse. The amount she gets from her insurer depends on how much loss occurred, but she and the insurer have different opinions on the value of the loss and are at a stalemate.

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In this situation, both the insured and the insurer is required to: 1. Obtain an independent appraisal. 2. Share in the cost of an umpire who will settle the dispute. 3. Abide by the umpires decision because legally, it is final and binding. The umpire only decides the amount of a settlement. The question of whether coverage exists would be decided in another legal venue.

Other Insurance
When more than one insurance company insures a piece of property, pro rata liability rules will apply, in keeping with the doctrine of indemnity. The formula to establish settlement contributions is as follows: Company A Coverage Amount ----------------------------------------Total Amount of Insurance (from all companies)

x Loss = Amount company A will pay

Heres a way to remember the formula: DID Coverage from company A ----------------------------------------SHOULD Coverages from all companies

x Loss = Amount company A will pay

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Example Alice, a hard working author, purchases a retreat home in upstate Wisconsin. Alice needs seclusion to write her blockbusters but unfortunately, the price of seclusion is loss of convenient services like nearby fire hydrants. Alice attempts to purchase a full coverage insurance policy for her $300,000 home from Lake in the Hills Insurance Company, but the Company will only provide insurance for $150,000 (Policy A). Alice then goes to the Elgin Insurance Company and picks up a policy (Policy B) for the remaining $150,000. What will happen if there is a $50,000 loss? Will both companies pay the $50,000? Well, we know for sure that both companies wont pay the $50,000 because of the doctrine of indemnity. Lets take a look at what the companies will pay under pro rata liability: Policy A = $150,000 x $50,000 = $25,000 -----------$300,000 Policy B = $150,000 x $50,000 = $25,000 ------------$300,000 Total Settlement = $50,000

Assignment
The Assignment condition specifies that a policy may not be transferred to anyone else without the written consent of the insurer, unless the insured dies. In that case, the rights and duties under the policy are transferred to the insureds legal representative.

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Subrogation
Subrogation is a word that means substitution. In the legal arena the process works like this: The insureds insurance company (Company A) pays losses that were caused by an insured of another insurance company (Company B). In return for paying the claim, the insured gives Company A the right to arbitrate or sue Company B to recover the payment. Subrogation is this transfer of the insureds right of recovery against others to an insurance company.

Arbitration
Arbitration is used to resolve areas of disagreement between: (1) the insured and the insurance company, (2) between two insurers or, (3) in the case of liability insurance, between the company and a third party. An arbitrator listens to both parties and makes a fair decision based on oral evidence provided by both. Typically, both parties agree to be bound by the arbitrators decision.

Elements of a Legal Contract


Every legal contract voluntary, written, and must contain 5 elements. 1. The Offer Common sense says that an insurance company or an agent makes the offer to buy an insurance contract, but legally this is not true. The prospect makes the offer by filling out the application and submitting it to the insurance company. The role of the company and its agents is to solicit offers through advertisements, telephone calls and conversations. Note: This is an important test point. A Counter Offer negates the original offer. For example, an insurance company that comes back to the proposed insured with a Rated Policy is making a counter offer. 2. Acceptance The insurance company can accept the prospects offer by issuing the policy, as long as the prospect has submitted the application and paid the initial premium. The Offer and the Acceptance constitute the Agreement.

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3. Consideration In a valid contract, all parties provide something of value a Consideration. Lets make a deal, says the prospect to the insurer. Ill fill out the forms and pay the premium and you promise to pay for a covered claim in the future. The deal is done, says the insurer. Our mutual consideration requirements are satisfied. This kind of contract, in which one party pays something and the other party promises to do something in the future, is known as a Unilateral Contract. 4.Contract Must Be For A Legal Purpose For example, you cant buy a policy with the intent to kill the insured to collect the proceeds. 5. Meeting of the Minds, or Competent Parties All parties must be competent, understand the terms, and have the capacity to contract. If the contract is written in a foreign language your prospect doesnt understand, or if the contract language is so confusing that it cannot be understood by a reasonable person, and has not been explained by the agent, there is no valid contract. Courts have determined that minors have the capacity to contract for life insurance, but not for property and casualty insurance. 5. Meeting of the Minds, or Competent Parties All parties must be competent, understand the terms, and have the capacity to contract. If the contract is written in a foreign language your prospect doesnt understand, or if the contract language is so confusing that it cannot be understood by a reasonable person, and has not been explained by the agent, there is no valid contract. Courts have determined that minors have the capacity to contract for life insurance, but not for property and casualty insurance.

Representations and Warranties


Most of the statements contained in the insureds application for insurance are Representations. Representations are statements that the applicant believes to be true. Legally, the parties dont create a contract based on a representation, so a policy cannot be voided on the basis of a misrepresentation.

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Sometimes specific agreements between the insured and the insurer specify that certain conditions will be met. For example, an agreement might require a small convenience store to hire a security guard during the nighttime hours because of local crime problems. Such an agreement is called a warranty, and becomes part of the policy. A breached agreement can void the policy.

Concealment
Concealment is failure to disclose a material fact that would have prevented the contract from being agreed to had it been known by the insurer.

Binder
A Binder is a temporary contract of insurance - oral or written - offered by an insurer or an agent with the authority to issue a binder. It provides temporary coverage of the insured until the policy is officially issued. A binder is usually written for a period of 30 or 60 days and remains in force for that period unless canceled, or until a permanent policy is issued or refused by the insurer. A binder does not guarantee that a policy will be issued. It only guarantees Temporary coverage. Coverage under a binder may be cancelled by a formal cancellation or a rejection notice. If no formal action is taken by the insurer the binder remains in effect until it expires. Example: Neil purchases a new car and calls his insurance agent. The agent tells Neil that hes covered for a period of 60 days. This is an example of a binder. The insurance company then reviews the application and decides not to issue the policy. However, the insurance company doesnt send a notice to Neil. It gets worse. Thirty days later, Neil is in a car accident and its his fault. Is he covered? Yes he is, because the agent issued a binder and would have coverage for this loss unless notified to the contrary.

Sources of Insurability Information and Underwriting


An insurance application will be reviewed by insurance company underwriters to determine whether there is an insurable risk, whether the insured have an insurable interest, and whether the property is insurable.

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Underwriters research multiple databases to determine insurability, including: Inspection reports Motor vehicle reports Credit reports

Fair Credit Reporting Act (FCRA)


The Fair Credit Reporting Act was designed to ensure accuracy, preserve privacy, and place limits on the activities of various Consumer Reporting Agencies. The agent has a duty to explain the terms of the FCRA because applicants are asked to sign forms that give underwriters the authority to investigate the applicants background, especially financial records. The FRCA also gives consumers the right to discover what information an investigative agency has provided about them, and to whom such reports have been made. If a consumer is denied insurance because of information contained in a credit report, general reputation or personal character, the consumer must be notified. The consumer has six months to correct erroneous information.

This concludes lesson five. Return to your online course player to take the Lesson Quiz.

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Module 2: Casualty Insurance


Introduction
With so many lawsuits in modern life, unprotected liability is an idea that should scare any smart person. Sure enough, the word liability comes from the Latin word ligare, which means to bind, and without insurance that protects against legal liabilities, we are bound, held back, living in fear of obligations that could ruin us. Liabilities result from casualties, and this module will cover the basics of Casualty Insurance, including: Insurance terms and related concepts Types of casualty policies, bonds and related terms Personal & Business auto insurance Other liability policies Policy Provisions

After completing this module and reviewing the relevant material specific to your state, you will be prepared to pass the test that will allow you to protect your clients through Casualty Insurance.

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Lesson 6: INSURANCE TERMS AND RELATED CONCEPTS


This lesson focuses on the following topics: Purpose of Insurance Parts of an Insurance Contract Risk Hazards Indemnity Insurable Interest Actual Cash Value (ACV) Negligence Liability Accident vs. Occurrence Burglary Robbery Theft Mysterious Disappearance Binder Representations and Warranties Concealment Bodily Injury (BI) Property Damage (PD) Personal Injury (PI) Limits of Liability Deductibles Insured Contracts Deposit Premium and Premium Audit Certificate of Insurance

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Introduction
This lesson will review many of the terms you learned in the Property Module and add several that are specific to Casualty Insurance.

Purpose of Insurance
The purpose of insurance is to provide a practical solution to economic uncertainties and unexpected losses by spreading risk. For test purposes, insurance is defined as a social device for handling risk by transferring it.

Parts of an Insurance Contract


We begin with the insurance policy. Everything revolves around the policy, which defines the scope of coverages and the duties of all parties. Because an insurance policy is a legal contract, it must be specific about the agreements between the insured and the insurer. Most policies contain five parts, and you can remember them with the acronym D I C E - D: D - Declarations are usually found on the first page of the policy, and include: the kind of insurance, the name and address of the insured, description of the property, amount of coverage, and the cost of the policy. I - Insuring Agreements are the core of the policy. This section describes the insured property and the perils that are covered by the policy. To use insurance language, it describes the losses for which the insured will be indemnified or protected. C - The Conditions section outlines the responsibilities and obligations of both the insurance company and the insured. E - The Exclusions section describes losses the policy doesnt cover in other words, losses for which the insured will not be indemnified. D - The Definitions section clarifies the meaning of certain terms used in the policy.

Risk
A risk involves uncertainty, or the chance of a loss. There are two types of risk: A Speculative Risk has the potential of either improving or harming the financial position of the person taking the risk. Gambling is the best example of speculative risk. Insurance policies will NOT protect speculative risks.
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A Pure Risk, on the other hand, IS covered by insurance. A pure risk is a potential for loss, not gain. Insurance only covers actual losses, and does not allow the insured to make money because of a loss. In fact, the goal of insurance is to restore the insureds financial position just prior to the loss.

Hazards
A hazard is any factor, or any situation, that increases, or contributes to, the probability that a peril will occur, thereby increasing the chance of a loss. Oily rags stored next to a furnace constitute a hazard. An insurance company is concerned about three kinds of hazards.

Types of Hazards
Physical Hazard: A visible or tangible condition of the premises that increases the chances of a peril occurring, like faulty wiring, slippery floors, icy roads, gasoline cans, or other obvious situations. Moral Hazard: The possibility that the insured may try to defraud the insurance company through intentional and deliberate destruction of property, by arson, for example. Morale Hazard: Attitudes or behaviors that make a loss more likely, like indifference, carelessness, laziness or lack of concern for the property. Leaving keys in a car, smoking in bed, and exceeding the speed limit are all morale hazards.

Indemnity
Indemnity is simply the duty of protecting against loss or damage. Insurance contracts are contracts of indemnity. The insurance company indemnifies the policyowner by promising to protect against covered losses up to the limit of the policy. The purpose of indemnification is to restore the policyowners financial position enjoyed before the loss occurred.

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Insurable Interest
In order to from insurance, the policyowner must stand to lose something financially should anything happen to the insured items. The policyowners insurable interest must be valid at the time of a loss.

Actual Cash Value (ACV)


Many losses are settled with the insurance company on an actual cash value basis. This is usually calculated by determining what the item would cost to replace (replacement cost) and subtracting an amount for depreciation (use). This is only fair. In fact, the principle of indemnity would be violated if the insured were paid the full replacement cost without deducting anything for having used the insured item. The formula for Actual Cash Value is: ACV = Replacement Cost (minus) Depreciation

Negligence
The law imposes a duty on everyone to act in a reasonable and prudent manner. When they dont they violate Tort Law. A Tort is a legal wrong that results in injury to persons or property. Insurance companies will not cover intentional acts that violate Tort law. Negligence can be seen as an unreasonable or imprudent act, but it is never an intentional act. Negligence is also known as an unintentional Tort. Insurers have created a checklist to determine whether one fails to do what a reasonable person would do under similar circumstances. Was there a legal duty to act or not to act? Was there a breach of that duty? Was there injury or damage to another person? Was the act the proximate cause of the damages?

A case for negligence can be made if all four questions can be answered with a yes. The insurance policy will typically pay for the covered losses.

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Liability
Liability insurance protects policyowners against financial loss from claims by third parties. Like other risks covered by the general insurance system, it works by transferring the burden of financial loss from the insured to the insurance company.

Accident vs. Occurrence


Property and casualty contracts are usually written to cover two kinds of perils: a one-time accident and an occurrence. An accident is an event that is unintended and unforeseen, Examples of an accident, or a mishap, include: A woman jogger falls when a bicyclist crosses her path. A car hits a telephone pole. Lightning causes a fire when it strikes an office building.

An occurrence is also a sudden, unexpected, unforeseen event resulting in financial loss but it includes gradual, continual and repeated exposure to an adverse condition. The following are occurrences, not accidents: An underground storage tank at a service station gradually pollutes ground water. An insured worker becomes ill due to continuous and repeated exposure to toxic fumes on the job.

Burglary
Burglary is the forcible entry into or exit out of an insureds locked premises, and the carrying away of property belonging to the insured. Burglary can also include the act of forcing a guard to open a locked premise.

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Robbery
Robbery is not simple theft. It is the forcible removal of an insureds property from a messenger or custodian through violence, or the threat of violence by any means that may injure or murder the messenger or custodian. A messenger is defined as an insured, partner, officer or any other employee of the insured who is authorized to have custody of the insured property outside the insured premises. A custodian can be defined in the same way as a messenger inside the premises. A guard or watchperson means any person the insured retains specifically to have care and custody of property inside the premises and who has no other duties.

Theft
Theft is a broad term that includes any unlawful taking of property, including the acts of burglary and robbery. The term theft, however, does not include all forms of stealing. For example, it usually does not include employee dishonesty.

Mysterious Disappearance
A mysterious disappearance is as unexplained in the insurance world as it is in an old black-and-white detective movie property simply vanishes with no known explanation.

Binder
A Binder is a temporary contract of insurance oral or written offered by an insurer or an agent with the authority to issue a binder. It provides temporary coverage of the insured until the policy is officially issued. A binder is usually written for a period of 30 or 60 days and remains in force for that period unless canceled, or until a permanent policy is issued or refused by the insurer. A binder does NOT guarantee that a policy will be issued. It only guarantees temporary coverage. Coverage under a binder may be cancelled by a formal cancellation or a rejection notice. If no formal action is taken by the insurer the binder remains in effect until it expires.
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Representations and Warranties


Most of the statements contained in the insureds application for insurance are Representations. Representations are statements that the applicant believes to be true. Legally, the parties dont create a contract based on a representation, so a policy cannot be voided on the basis of a misrepresentation. Sometimes specific agreements between the insured and the insurer specify that certain conditions will be met. For example, an agreement might require a small convenience store to hire a security guard during the nighttime hours because of local crime problems.

Concealment
Concealment is failure to disclose a Material Fact that, had it been known by the underwriter, would have prevented the underwriter from issuing the policy.

Bodily Injury (BI)


Bodily injury means injury, sickness, disease and death arising out of injury, sickness or disease.

Property Damage (PD)


Property damage means damage to or destruction of property, including loss of use of the property.

Personal Injury (PI)


Liability policies offer coverage for an insureds liability for personal injury, such as slander, libel, false arrest, and invasion of privacy.

Limits of Liability
Limits of liability represent the maximum amount the insurance company will pay for a loss. Within this framework, the principle of indemnity and applicable policy conditions are used to determine the exact reimbursement in the event of a loss. The limits of liability are found on the Declarations page.

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Deductibles
In order to avoid minor claims, companies usually write deductibles into their property contracts. This means that the insured must pay some portion of the loss. The insured will pay the deductible first and the insurance company will pay the remainder of the claim within covered imitations.

Insured Contracts
Insured contracts are contracts to perform a service or use of property which, because of the subject matter, requires insurance coverage to pick up any potential covered risks. Insured contracts could include any of the following: A lease of premises A sidetrack agreement in which a railroad allows a business to use a sidetrack, after meeting certain maintenance conditions An elevator maintenance agreement

Deposit Premium and Premium Audit


A Deposit Premium - also called an estimated premium or an advance premium - is the premium paid at the beginning of the policy period that is based on an estimate of what the final premium will be. This premium is later adjusted based on reports submitted by the insured to the insurer. A Premium Audit is computed by the insurer. At the close of each audit period the insurer computes the earned premium for that period. Audit premiums are due and payable on notice to the first named insured. Excess premium will be returned by the insurer if the sum of the advance and audit premiums is greater than the earned premium.

Certificate of Insurance
A Certificate of Insurance is the legal document that attests to insurance coverage. It is a short-form summary of the coverage provided by the policy. In Property Insurance, a Certificate of Insurance can prove the existence of a master policy that provides protection for more than one person.
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Example: Residents of the Cool Condominiums Community buy property insurance through their condominium association. The association then request separate Certificates of Insurance for each association member. In Casualty Insurance, a Certificate of insurance is generally issued to demonstrate proof of liability coverage for a specific location or project. Example: A property owner decides to hire Really Good Remodelers to build an addition. Before signing the deal, the property owner requires PGR to provide a Certificate of Insurance. This concludes lesson six.

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Lesson 7: TYPES OF POLICIES, BONDS, AND RELATED TERMS


This lesson focuses on the following topics: Commercial General Liability (CGL) Basic Hazards Commercial General Liability (CGL) Coverage Forms Occurrence Claims Made Commercial General Liability Coverage Form Coverage A - Bodily Injury (BI) & Property Damage (PD) Coverage B - Personal & Advertising Injury Liability Coverage C - Medical Payments Who is an Insured? Limits of Insurance CGL Conditions Common Policy Conditions of the Insurance Services Office (ISO) Owners and Contractors Protective (O&CP)

Commercial General Liability (CGL)


The CGL provides liability insurance for most types of commercial or business risks. It is the core of coverage for many clients. The GCL is part of the Commercial Package Policy, but it can also be sold in conjunction with other coverages, or can be purchased independently. The CGL policy offers a variety of different coverages. Each is designed for a particular type of exposure. A CGL policy can cover many individuals who are related to a business enterprise - the named insured, partners, officers, directors and shareholders. If spouses are acting within the scope of business, they are covered, as well as employees, managers. In other words: anyone acting with authority within the business can be covered by a CGL policy. Before launching into details of CGL coverage, lets first review a few important terms and definitions.

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Basic Hazards
Premises and Operations Exposure
Premises and Operations Exposure refers to liability that arises out of the conduct of a business, including hazards of its location. It includes liability for bodily injury, property damage and personal and advertising injury. Personal and Advertising injury includes issues like slander, libel, copyright infringement, invasion of privacy, false arrest, wrongful entry onto anothers premises, and malicious prosecution. Example: While visiting her local bank, Mary Jane slips on the floor because an employee failed to wipe up water caused by a rain storm. The bank is liable because of the condition of its premises.

Products and Completed Operations


Hazards arising from Products and Completed Operations represent a business liability due to defects in its products of completed operations. Example: You waited all week to purchase your favorite custard donuts at the Delicious Donut Shop. After returning home with your yummy donuts, you take your first bite and realize the custard is sour and sickening. You file a claim against the bakery because its finished product is defective

Independent Contractors
From time to time, a business can be held liable for the actions of others. This is known as Contingent Liability, which arises out of the work done by independent contractors. In general, an individual business cannot be held responsible for the negligence of an independent contractor, unless: The activity is legal. A situation is involved which does not permit delegation of authority. The work is inherently dangerous.

Contractual Liability
Contractual liability applies to insured contracts, which include all of the following: A lease of a premises A sidetrack agreement An elevator maintenance agreement

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Any easement or license agreement - except in connection with construction or demolition operations - on or within 50 feet of a railroad. An obligation as required by ordinance to indemnify a municipality, except in connection with work for a municipality.

Commercial General Liability (CGL) Coverage Forms


A Commercial General Liability coverage policy must include the following sections: Common Policy Declarations Common Policy Conditions CGL Declarations One or more CGL coverage forms Any mandatory endorsements

Before learning the details of GCL coverage, lets revisit the idea of an occurrence and understand the requirements for making claims.

Occurrence
You will recall that an occurrence is an accident that involves continuous or repeated exposure to the same general harmful conditions. Coverage under the occurrence form is triggered by damage or injury that occurs during the policy period. If a policy has been written on an occurrence basis, the insurer will pay a claim that is covered, even if the claim is submitted after the effective policy period, as long as the accident occurred while the policy was in force.

Claims Made
With a Claims Made policy, the insurer will only cover claims made during the policy period, rather than cover occurrences and allow claims to be submitted after the policy period. A Claims Made Policy is designed to prevent a phenomenon called stacking of liability claims. Suppose an occurrence happened repeatedly over a 2 to 3 year period. Under an occurrence basis policy, the insured could stack claims to gain maximum liability limits for each year.

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Extended Reporting Periods (ERP)


Extended Reporting Periods can fill in the gap during the transitional period when a Claims Made policy is replaced by an Occurrence form. In other words, ERPs provide an extension of coverage for claims made after the policys expiration date. The policy provides an Extended Reporting Period if: The claims made form is cancelled or not renewed. The insurer renews or replaces the form shown in the Declarations of the current form. The insurer renews or replaces the form with an occurrence form.

Once an Extended Reporting Period is in effect, it cannot be cancelled. There are two kinds of ERPs - the Basic and the Supplemental.

Basic Extended Reporting Period


The Basic Extended Reporting Period of either 60 days or five years is available automatically and free of charge. It provides automatic coverage for any valid claim made during the 60 days after the policy expires, as long as the incident occurred between the expiring policys retroactive date and its expiration date. If an event took place before the Claims Made policy expired, but it appears that the claims may not be made until after the 60 day basic extended reporting period, the insured has up to 60 days after the policy expiration to report the occurrence or offense to the insurer. In this case, the five year basic extended reporting period automatically applies, and Claims for damages arising from the reported occurrence can be brought any time during the five year period.

Supplemental Extended Reporting Period


The Supplemental Extended Reporting Period endorsement provides an unlimited extension of the reporting period. The extended reporting period takes effect at the end of either the 60 day or five year ERP, whichever applies. The insured must request this endorsement and pay an additional premium.

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Retroactive Date
The Retroactive Date is the date when a Claims Made policy may not pay. However, the retroactive date can provide some measure of protection against previous losses that may have occurred before the claims made form was written. The retroactive date is listed in the CGL Declarations. The insured has three options for the retroactive date: o Use the same date as the policy effective date. o Use an earlier date than the policy effective date. o Use no retroactive date. When selling a new CGL policy, agents should take care to not create a gap when the insured has no coverage.

Commercial General Liability Coverage Form


The Commercial General Liability Policy provides the following coverages on an occurrence or claims made basis:

Coverage A
Premises BI and PD Operations Products Completed Operations Independent Contractors Contractual Fire Legal

Coverage B
Personal Injury Advertising Injury

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Coverage C
Medical Payments

Supplementary Payments
For Coverages A&B

Here are more details on Coverages and Supplementary Payments.

Coverage A - Bodily Injury (Bi) & Property Damage (Pd)


Coverage A protects against liability for bodily injury and property damage, including liability for: Premises and operations Products Completed operations Contractual issues, and Fire and legal

For coverage to be effective, the BI or PD must occur within the policy period, and must be caused by an occurrence. Property damage means physical injury to tangible property, including the resulting loss of use of that property, as well as the loss of use of tangible property that is not physically injured. The insurer has the right and the duty to defend against any suit that seeks BI and PD damages.

Exclusions to Coverage A
Coverage A does not apply to BI and PD caused by: War Expected or intentional acts Work-related occurrences Discharge of pollutants

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Damage to property owned, rented or occupied by the insured, or in the insureds care, custody or control Damage to the insureds own product arising out of the product itself Damage to the insureds own work Activities an Insured assumes under a contract or agreement Automobile, aircraft or watercraft activities Work related injuries covered under workers compensation Dram shop (Liquor liability) Personal property of others in the insureds care Any loss, cost or expense incurred by the insured for the recall of a product because of a known or suspected defect Activities associated with the transportation by auto of mobile equipment

Coverage B - Personal & Advertising Injury Liability


Coverage B pays for damages that arise from personal or advertising injury. In this context, personal injury does not mean physical harm but harm that comes from embarrassment, loss of reputation, or an action that calls into question the insureds character. Personal injuries are not covered if they result from the insureds personal life, only if they occur in the course of conducting the insureds business. Personal Injury includes: Malicious prosecution Libel Slander False arrest Defamation of character Unlawful eviction or entry Violation of the right to privacy

Advertising Mistakes can result in large liabilities. An advertising injury can result from the following behaviors, among others:

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Stealing the advertising ideas or the style of another. Infringing on the copyright, title or slogan of another company. Written or oral publication of material that violates anothers right to privacy. Oral or written publication that contributes to the slander or libel of a person, or of that persons organizations goods, products or services.

Exclusions to Coverage B
Coverage B will not protect the insured when the insured: Publishes material before the covering policy has taken effect. Is aware that oral or written publications are false. Willfully and knowingly violates the law. Assumes liability in a contract or agreement.

Coverage B also doesnt cover injuries that result from: A breach of contract The failure of goods to conform to advertised quality The wrong description of the price of goods, products or services An offense committed by an insured, when the insureds business is advertising, broadcasting, publishing or telecasting Criminal acts committed or directed by the insured

Supplementary Payments - Apply to Coverages A and B


Supplementary Payments available with the Commercial General Liability Coverages A and B protect against legal costs, including: Defense costs All other expenses incurred in investigating or settling the claim Up to $250 for the cost of bail bonds Reasonable expenses the insured incurs at the companys request in assisting their defense efforts including loss of earnings of up to $250 a day

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The cost of appeal bonds and attachment bonds, but the insurance company is not responsible for actually providing the bonds Any interest awards made to the other person to offset the time between the occurrence or the judgment and the actual payment of damages

A curious feature of Americas judicial system makes coverage of defense costs the most important Supplementary Payment. A lawyer bringing a lawsuit against an insurance company is paid by receiving a percentage of the award. Without supplementary coverage of defense costs, a business owner who loses a lawsuit will not only be liable for the cost of a legal defense, but also for the judgment amount, which includes payment to the lawyers who won the case! The business owner who wins still pays the full cost of legal defense, which can be large for even small, nuisance lawsuits. With liability coverage of defense costs, however, the insureds company pays for the legal defense.

Coverage C - Medical Payments


If an accident occurs on the insureds worksite, Coverage C pays medical expenses for bodily injury for people other than the insurer or its employees, and regardless of fault. Coverage C pays claims are that are incurred within one year of an accident that occurred: 1. During a policy period 2. Involved bodily injury 3. Occurred on premises owned or rented by the insured 4. For bodily injury that results from the insureds operations Coverage C provides no fault coverage, with reimbursement for: Medical payments for a necessary hospital Ambulance Funeral expenses Professional nursing care

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First aid that is given when an accident occurs Any necessary medical, surgical, prosthetic devices, x-ray and dental services

Exclusions to Coverage C
Medical payments will not cover expenses for bodily injury to: Insureds Persons hired to work for the insured Tenants of the insured Persons entitled to workers compensation Persons involved in an athletic event Persons injured resulting from the products-completed operations hazard (These would be paid under Coverage A) Persons excluded under Coverage A Persons injured due to war

Who is an Insured?
Since the need for liability insurance varies with the type of business, the CGL addresses all types of business structures: Individuals - Insured and spouse Partnership, Joint Venture - Insured, insureds members and their spouses Limited Liability Company - Insured, members and managers Corporation - Owner, executive officers, directors and stockholders Other Organizations - Insured, executive officers, directors and shareholders

Note: In all these cases, employees are also insured for acts within the scope of their employment. The insureds legal representative is considered an insured if the insured dies, but only with respect to duties as the legal representative.

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Limits of Insurance
The Limits of Insurance shown in the Declarations establish the most the insured will be paid, regardless of the number of insureds, claims made, suits brought or persons bringing suit. The Declarations include several kinds of limits: The General Aggregate Limit is the most the insurance company will pay during the policy period for BI and PD, except those provided for under Products Completed Operations coverage. This limit can be modified by endorsement so that it applies separately to each of the insureds locations or projects. Aggregate Limits of liability are established for all coverages included under two sets of claims: The first set is for products-completed operations claims, representing the most that will be paid under Coverage A due to injury and damage arising out of the products completed operations hazard. The second set is for all other coverages.

The Personal and Advertising Injury Limit represents the most that will be paid under Coverage B for the sum of all damages due to personal injury sustained by any one person or organization. This limit is also subject to the overall General Aggregate Limit. Each Occurrence Limit is the most the insurance company will pay for the sum of all damages under Coverage A and C because of bodily injury, property damage and medical payments, arising out of any one occurrence. This limit is also subject to either the General Aggregate Limit or the Products Completed Operations Aggregate Limit, whichever is applicable. Damage to Premises Rented to the Insured Limit represents the most that will be paid under Coverage A for liability for fire damage to premises rented to the insured - or occupied by the insured with the owners permission - arising out of any one fire. This limit is also subject to the Per Occurrence Limit and the General Aggregate Limit. Medical Expense Limit is the most that will be paid under Coverage C for all medical expenses because of bodily injury sustained by any one person. The Medical Expense Limit is subject to the Per Occurrence and General Aggregate Limits.

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CGL Conditions
These conditions are found in both the Occurrence and Claims Made forms. The Bankruptcy condition commits the insurer to pay claims covered under this policy even if the insured becomes bankrupt or insolvent. Duties in the Event of Occurrence, Claim or Suit requires the insured to promptly notify the insurance company of an occurrence that may result in a claim or suit and give written notice to the insurer of any claim that has been made, or relevant suit that has been brought against the insured. Legal Action against Us states that no person or organization has the right to join the insurance company as a party, or to bring the insurance company into a suit. The Insured must also do the following as a condition of CGL: o Authorize the insurer to obtain records. o Send the insurer copies of any demands, notices or other legal papers received in connection with a claim or suit on a timely basis. o Cooperate with the insurer in the investigation, defense and settlement of the claim. o At the companys request, assist the insurer in the enforcement of any right against someone who may be liable to the insured. o Not voluntarily make a payment, assume any obligation or incur any expense, other than expenses for first aid, without the insurers consent, except at the insureds own cost.

Common Policy Conditions of the Insurance Services Office (ISO)


Insurance Services Office, Inc. (ISO) provides data, underwriting, risk management and legal and regulatory services to property-casualty insurers and other clients. One of ISOs roles is to develop standardized language for the insurance industry. Following are common conditions for the CGL policy that are widely accepted by insurers:

Nonrenewal
If the insurer decides to not renew the CGL policy, it must mail or deliver written notice of nonrenewal to the first named insured at least 30 days before the expiration date of the policy.

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Handling Double-Insured Losses


When the insureds loss is covered by a primary CGL policy and one or more other primary policies cover the same loss, payment will be divided between the insurers by one of two methods: Contribution by Equal Shares: All insurers contribute equally up to the limit of the policy with the lowest limit. At that point, the insurer with the lowest limit stops paying since it has already paid its policys limit, and the other insurers share the remainder of the loss. This continues either until the loss is paid in full or each company has paid its limit. Contribution by Limits: Each company pays a proportion of the loss equal to the proportion its policy limits bear to the total amount of insurance available.

Insurers Obligation to Provide Claims Information


The right to make claims is included in the claims made form, but not the occurrence form. The insurer will provide claims information so the CGL policyowner can stay current on claims and limits. The insurer is obligated provide the first named insured certain information relating to the current CGL claims made form and any previous claims made forms the insurer has issued to the insured during the previous three years. This information includes: o A list or record of each occurrence not previously reported to any other insurer of which the insurer has been notified according to policy provisions. o A summary, by policy year, of payments made and amounts reserved under any applicable General aggregate Limit and Products Completed Operations Aggregate Limit. If the insurer cancels or does not renew the policy, it will provide this information no later than 30 days prior to termination. In other circumstances, the insurer will provide the information only if it receives a written request from the first named insured within 60 days after the end of the policy period. The information will then be provided within 45 days of the request.

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Owners and Contractors Protective (O&CP)


The Owners and Contractors Protective policy covers one liability exposure only an insureds independent contractor exposure. It provides liability protection in those situations where the law holds the owner or principal contractor liable for the negligence of an independent contractor, especially when the work is unlawful, very dangerous, of such nature that the liability for the work cannot be transferred or delegated. Under the O&CP insuring agreement, claims will be paid for bodily injury or property damage due to operations performed for an insured who is named by a contractor designated in the Declarations agreement, and only at the designated location. This policy will also help pay for defending a lawsuit.

This concludes lesson seven. Return to your online course player to take the Lesson Quiz.

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Lesson 8: AUTOMOTIVE: PERSONAL AUTO AND BUSINESS (COMMERCIAL) AUTO


This lesson focuses on the following topics: Introduction Liability and Medical Personal Auto Policy (PAP) PAP Coverages Part A - Liability Coverage Part B - Medical Payments Part C - Uninsured Motorist Coverage Underinsured Motorist Coverage Part D - Coverage for Damage to Your Auto Part E - Duties of the Insured after an Accident or Loss Personal Auto Policy Endorsements Assigned Risk Plans Commercial Auto Insurance Business Auto Coverage Form Who is an Insured? Exclusions Types of Autos Covered Garage Coverage Form

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Introduction
Americans love their cars and trucks. The United States has more than 243 million registered passenger vehicles and 196 million licensed drivers to operate them. Thats 1.2 vehicles for every driver! And every vehicle needs insurance, whether it is used for personal or business purposes. This is a huge market. It pays for every agent to be an expert on automotive insurance.

Liability and Medical


Automobile liability addresses third party claims for bodily injury and property damage arising out of the insureds negligent operation of an automobile. Many state statutes require motorists to have a minimum level of coverage. Automobile policies provide basic coverages of liability, medical payments, physical damage, and uninsured motorist protection.

Personal Auto Policy (PAP)


PAP is designed for personal, not commercial, auto exposure. Eligible vehicles include any private passenger auto and any pickup or van with a gross weight less than 10,000 pounds which is not used in a freight or delivery business. Also included are vehicles which are leased for a minimum period of six consecutive months. The PAP is not available to corporations, partnerships or other organizations that can be incidentally responsible for the use of insured vehicles. The PAP consists of a Declarations page and a policy form. The policy form contains four separate coverages, each with its own insuring agreement, exclusions and conditions. They are: Part A - Liability Coverage Part B - Medical Payments Coverage Part C - Uninsured Motorists Coverage Part D - Coverage for Damage to Your Auto (Physical Damage)

Now, more detail on each coverage.

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PAP Coverages Part A - Liability Coverage


Part A provides payment for Bodily Injury and Property Damage for which the insured becomes legally liable. Under this Part, the company promises to settle and defend claims brought against the insured involving the insureds use of an auto. The company also agrees to pay for all defense costs. The definition of insured is quite broad and includes not only family members, but anyone who drives a vehicle with permission. The liability coverage under a PAP policy is for any insured who becomes legally responsible for the bodily injury or property damage to someone else because of an auto accident. An insurance company will pay sums up to limits stated in the Declarations portion of the PAP. Coverage begins at 12:01 a.m. on the date listed in the policy. Damages paid for bodily injury include not only payments of documented medical costs, but also for a persons pain and suffering due to the injury. Property damage extends to any kind of property that is damaged due to the negligent operation of an auto including vehicles, buildings, street lights or any other kind of stationary object. The insurer has the option to settle or defend any claim or suit that it deems appropriate. The insured cannot dictate coverage payment or refusal.

Liability Limits
Part A liability is the most the company will pay for all damages resulting from any one auto accident, regardless of the number of insureds, claims filed, vehicles or premiums listed in the Declarations, or vehicles involved in the accident. Liability coverage is written on a split limit basis such as 20/30/15. The first two numbers are related to bodily injury. In this case, the liability limits are: $20,000 per person for bodily injury in any one accident, $30,000 per accident for bodily injury; and $15,000 maximum for all property damaged in any one accident.

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Part A - Defining the Insureds


Under Part A, the insured includes the person who owns the policy and: Any family member. Any person using the vehicle with the insureds permission. Any organization that holds legal responsibility for the acts or omissions of a person for whom coverage is afforded under this part.

Here is a simple way of understanding who is insured under Part A: The coverage follows the auto.

PAP Example
Melvin Doofis, a citizen of a town called Eat n Plenty, is the head coach of the towns football team. On a hot summer night, Melvin decides to host an outdoor pool party at his house for the entire football team, friends and relatives. Since all of the 250 guests brought automobiles to the dinner, parking is a problem. Melvins car is parked at the top of his driveway. Billy Bob, Melvins quarterback, parked his car just to the right of Melvins. In back of those cars, are two cars belonging to the Eat n Plenty cheerleaders, Pattie and Sally. In the middle of the party, Melvin runs out of snacks, and the team is getting rather hostile and ugly. Melvin asks Herman to accompany him to the grocery store. He borrows Sallys car, which is located in the driveway nearest the street. Sally carries minimum limits of 10/20/5 liability insurance. Melvin carries 200/300/200. Lets take a look at the following facts to understand some of the issues in this situation:
1. Whose auto insurance liability applies if there is an accident?

Sallys liability insurance applies when Melvin drives her car with her permission. By definition, Melvin becomes an insured under Sallys liability coverage.
2. If Melvin negligently runs a stop sign, hits a light pole and causes injuries to himself and Herman, whose liability insurance would cover both Hermans and Melvins injuries? Sallys liability insurance would apply to both on a primary basis because at the time of the accident, the driver - Melvin - is an insured under her policy, and Herman - the passenger - is also an insured.

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3. If Herman sustains a serious injury resulting in an $80,000 claim? Sallys auto liability coverage would apply, on a primary basis for $10,000, to Hermans injuries. In turn, Melvins own 200/300/200 auto liability coverage would pay the remaining $70,000 on an excess basis. Remember, a primary coverage must be exhausted first before an excess coverage begins.

Supplementary Payments under Part A


Up to $200 a day for lost wages when the insured is required to attend a legal hearing or trial. Bail bonds costs up to $250. Cost of bonds to release attachments in any suit the company defends. Any expenses incurred by the insurance company. Reasonable expenses incurred at the insurers request. Interest payments (post judgment).

Exclusions
Part A does not pay for: Bodily injury or property damage caused intentionally by the insured. Damage to property owned or being transported by the insured. Damage to property rented to, used by, or in the care of the insured. Bodily injury to an employee of the insured during the course of employment. This exclusion does not apply to bodily injury to a domestic employee unless workers compensation is required or available for that domestic employee. Bodily injury or property damage caused by people engaged in the business of selling, repairing, serving, storing or parking automobiles. Damages to any vehicle that is being used for regular business purposes. Any liability arising out of the ownership or operation of a vehicle while it is being used to carry people or property for money or a fee. Motorized vehicles with fewer than four wheels, or designed for use off of public roads. Vehicles used in prearranged racing or speed contests.

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Out of State Coverage


If the insured is involved in an out-of-state auto accident and the state involved requires higher liability limits than the insured maintains, the PAP will provide the higher specified limit for this accident.

Part B - Medical Payments


Regardless of fault, the insured, the insureds family and passengers are covered for necessary medical and funeral expenses, regardless of who was at fault. The insured and family members are also covered if they are pedestrians struck by an auto. Part B Medical Payment coverage carries a single limit from $1,000 up to $10,000, and it applies to a single person per accident. If other applicable auto insurance policies provide medical payments, the policy will pay only its share of the loss. The insurers share is the proportion that this policys limit of liability bears to the total of all applicable limits.

Exclusions
Part B Medical Payments coverage does not apply to bodily injuries for any persons who sustain the injuries while: Occupying any motorized vehicle having fewer than four wheels. Using covered autos used as a livery conveyance. Using an auto for residential living. Using an auto during the course of employment, if workers compensation is available for the bodily injury. Occupying any vehicle other than a covered auto owned by, or used regularly by, a named insured or family member. Injured by war or nuclear hazard. Participating in prearranged racing or speed contests.

Part C - Uninsured Motorist Coverage


Part C agrees to pay damages legally due from the owner or operator of another vehicle, even if the vehicle carries no current insurance.

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Defining an Uninsured Motor Vehicle


An uninsured vehicle is one that is: Without liability coverage at the time of the accident. Operated by an unidentified hit and run driver who strikes an insured or family member, the insureds auto or any auto occupied by the insured or a family member. With liability coverage, but not enough to meet the states financial responsibility requirement. Without liability coverage at the time of the accident because the insurer is insolvent or denied coverage.

The above definition of an uninsured motor vehicle does not apply to: Vehicles operated by a self-insurer, unless insolvent. Vehicles owned by, or made available for, the regular use of the insured or any family member. Vehicles operated by a government agency. Vehicles operated on rails. Vehicles designed for use off of public road. Vehicles used as a residence.

Defining the Insured under Uninsured Motorists Coverage


Uninsured Motorists Coverage defines the insured as: The person named as the insured in the policy and family members. Anyone occupying the named insureds covered auto. Any person entitled to recover damages because of BI caused by an uninsured motorist to the named insured, family members or passengers in the covered auto.

Exclusions
Part C does not cover losses: For bodily injuries (BI) sustained by an insured - or the insureds family members - while occupying, or when struck by, an auto that is owned by the insured, but is not insured for Uninsured Motorists Coverage under any policy.

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That are settled without the insurers consent. That occur when the auto is being used as a public livery. That occur while the insured is using an auto without the reasonable belief that he or she is entitled to do so.

Limit of Liability
Coverage for Part C is subject to the limits of liability explained in Part A. In other words, the overall limit remains the limit, regardless of whether injuries are sustained by an accident with an insured or uninsured motorist.

Underinsured Motorist Coverage


Underinsured Motorist Coverage available by endorsement under the PAP. It covers the insured when involved in an accident with a driver who has auto liability insurance, but the limit of this insurance is insufficient to pay for the insureds bodily injury. Underinsured motorist coverage allows a covered person to be paid the difference between the actual damages for bodily injury and the limit of the other drivers insurance when it is not sufficient to pay the entire claim of the injured party.

Part D - Coverage for Damage to Your Auto


Part D Coverage is divided into two separate coverages: Collision Comprehensive - which is more frequently being called other than collision.

Collision means the upset of a covered auto or its impact with another vehicle or object. When a loss is not considered to be from a collision, it will be covered under something other than collision coverage. Autos will be replaced on an Actual Cash Value (ACV) basis. Comprehensive coverage is a loss other than from collision and addresses damage losses to the insured vehicle caused by:

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Missiles or falling objects Fire Theft or larceny Explosion or earthquake Windstorm Hail, water or flood Malicious mischief or vandalism Riot or civil commotion Contact with bird or animal Breakage of glass

Exclusions
Carrying people or property for a fee (livery service) Electrical breakdown Mechanical breakdown Normal wear and tear Road damage to tires Damage to radar detection equipment Loss of any CB radio, TV monitors, computers, etc. Custom furnishing in any pickup or van Losses from war or nuclear perils

Rental Cars
Car rental companies make the renter responsible for loss or damage to the rental car. Collision damage waivers may be purchased to relieve the renter of all or part of responsibility for loss or damage to a rental car. Under a PAP, Coverage D provides some coverage for a rental car, but details vary.

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Part E -Duties of the Insured after an Accident or Loss


This section explains what an insured must do after an accident or loss. Failure to comply quickly could relieve the insurance company from its obligation to pay claims. However, since a 1995 ruling, the insurer can only deny coverage if the timing of the report harms the insurers position in controlling costs or protecting its legal situation. Still, every motorist has a legal obligation to do the following as soon as possible after an accident or loss: Notify the police. Notify the insurance company. Be specific as to all the details of the loss, including when and where the loss occurred, how it occurred, names and addresses of witnesses and data about injured persons. Provide access to any needed information. Submit a completed proof of loss form. Protect the auto from further damage. Allow the company to inspect and/or appraise any damage.

Personal Auto Policy Endorsements


Some insureds have additional coverage needs that can be met by the following endorsements: Towing and Labor Costs Reimburses for the cost of having a vehicle towed. Extended Non-owned Coverage for Named Individual Extends the extensive coverage automatically provided under the PAP for the insured and the family while driving cars other than the insureds covered autos.

Assigned Risk Plans


Most companies will not accept drivers with poor driving records because their loss experience is much higher than the average driver. Yet the law requires these people to carry insurance.

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Assigned Risk Plans are voluntary agreements between licensed insurance companies that agree to share poor risks. Because these risks are randomly assigned to the participating companies, they are called assigned risks. Assigned risk drivers are usually issued policies with the minimum required liability limits for BI and PD.

Commercial Auto Insurance


Commercial Auto Insurance addresses risks specific to commercial automobile operations. A policy can be written as a mono-line policy (one line of insurance) or included in the CPP (Commercial Package Policy). Depending on the nature of the exposure, a Commercial Auto coverage part must contain: Common Policy Declarations. Common Policy Conditions. One of the five separate coverage forms: o Business Auto o Business Auto Physical Damage o Garage o Truckers o Motor Carrier o Declarations for coverage form selected

Business Auto Coverage Form


The Business Auto coverage form is used to insure private passenger and commercial auto exposure of all businesses other than garages, truckers and motor carriers as they would need separate forms. The Business Auto coverage form includes: The liability coverage will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which the insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto. This coverage is similar to the PAP coverage.

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Physical Damage coverage (Comprehensive) which is an all risk type of physical damage protection for automobiles, including theft but excluding loss by collision or upset (which may be added). o Specified Causes of Loss: More limited type of Comprehensive coverage and would cover only the following: Fire Lightning Explosion Theft Windstorm Hail Earthquake Flood Vandalism or mischief Sinking, burning, collision or derailment of a conveyance transporting the covered auto (e.g. ship)

o Collision: Covers overturn of the covered auto and collision with another object

Who is an Insured?
Named insured Those using a covered auto with permission Those who become liable for the actions of the insured

Exclusions
Intentional or expected injuries. Any liability assumed under a contract or agreement (does not apply to any liability the insured would have had if there were no contract or agreement). Work related injuries to employees which are covered by Workers Compensation. Damage to property owned by, transported by or in the care, custody or control of the insured. Damage arising out of the movement of property by a mechanical device.
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Damage arising out of the operation of certain mobile equipment. Pollution damage. Covered autos while racing.

Types of Autos Covered


Any vehicle listed in the Declarations that is owned or leased under a long-term contract of six months or more. Any auto acquired during the policy period. Any auto not owned by the named insured that is being used as a temporary substitute for a vehicle shown in the Declarations that is out of use because of breakdown, repair, servicing, loss or destruction.

Garage Coverage Form


This Form is for automobile-related businesses such as gas stations, parking garages and auto dealers who are excluded by the Business Auto coverage form. It is a unique form of coverage because it covers both liability for both auto and business. Automobiles in the insureds care, custody and control are covered. The Garage Coverage form provides: Liability coverage Garagekeepers coverage Physical Damage coverage

Uninsured Motorists, Underinsured Motorists and Medical Payments coverage may be added by endorsement.

Covered Autos
Customer autos left with the insured for service, repair, storage or safekeeping. Physical damage coverage only for the dealers autos and autos held for sale by dealers, nondealers or trailer dealers.

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Liability Coverage
The Garage coverage form covers both auto and business liability arising from: Ownership, maintenance or use of covered autos Garage operations

Garagekeepers Insurance (Coverage)


The Liability section of the Garage coverage form excludes liability for damage to property of others in the care, custody or control of the insured. For garages, this excludes a significant business exposure, the garages liability for customers autos in its care or custody. The Garagekeepers Insurance provides the following coverage to help: Covers the insureds liability for damage to customers property that the insured has for servicing, repair, parking, or storage Physical damage to customers property in the insureds custody whether or not the insured is liable Can be provided on either a primary or excess basis Causes of loss that can be covered include Comprehensive or Specified Causes of Loss and Collision

This concludes lesson eight. Return to your online course player to take the Lesson Quiz.

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Lesson 9: OTHER POLICIES: WORKERS COMPENSATION INSURANCE, EMPLOYERS LIABILITY INSURANCE AND RELATED ISSUES
This lesson focuses on the following topics: Workers Compensation Insurance Job Classification Experience Modification Factor Ways Employers Can Meet Obligations Workers Compensation and Employers Liability Insurance Bonding and Crime Surety Bonds Crime and Commercial Crime Insurance Professional Liability Umbrella/Excess Liability Policies Personal Umbrella Coverage Commercial Umbrella Coverage Aviation Insurance

Workers Compensation Insurance


Workers Compensation covers people, who are injured, become disabled or die from injuries or illness arising out of and occurring in their course of employment, and have a right to hold employers liable for economic or financial damages under workers compensation laws. Nearly all states that allow private insurance companies to offer coverage use the standardized Workers Compensation and Employers Liability policy filed by the National Council on Compensation Insurance (NCCI). An employee does not have to prove fault, since an employer cannot defend against the action, unless the employer can show that the employee was injured, suffered an injury, or died due to willful negligence. Willful negligence is defined as a deliberate act or failure to act with requisite indifference, or if the employee is intoxicated.

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None of the state workers compensation law covers every employer and/or type of employment. The workers compensation and employees liability policy provides coverage for payments that are required under state workers compensation law, as well as the liability risk for injuries and diseases that are occupationally related.

Because of their temporary status, the following types of employment are not covered under state workers compensation laws: Farm labor Domestic employment Employees of religious, charitable and nonprofit educational institutions Casual employees

Job Classification
Workers Compensation groups businesses according to types of labor. The business is classified, not individual jobs or operations. Classification is mainly determined by the labor that generates the greatest payroll. All employers and businesses in the same class receive the same rates.

Experience Modification Factor


The experience modification factor is used to help calculate premiums. The premium rate for each class of business is based on an average, and the experience modification factor provides a way to customize policy premiums for individual businesses. The modification factor is arrived at by comparing a companys payroll vs. its claims for a three-year period. That information is then compared with other businesses of a similar size in the same classification. A rating of 1.0 or less is called a credit modification, and will reduce premiums. A rating of greater than 1.0 is called a debit modification, and will increase premiums. Note: Only the first $5000 of any claim - the primary loss - is counted in the experience modification factor.

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Example Business A had five $1000 claims over their three-year period. Business B had one $5000 claims over the same period. Although the total dollar amount of claims is equal, Business B would likely be on better footing than Business A because it only filed one claim.

Ways Employers Can Meet Obligations


Employers can meet their Workers Compensation obligations by: Self insurance Private insurance State funds

Self Insured Self Insured means a business chooses to cover exposure for workers compensation through its own resources rather than purchase a policy. Most states allow self insurance as long as the employer shows evidence of financial adequacy. Self insurance - also called retention -is an option for large employers who meet certain criteria by: Posting a surety bond that will guarantee the security of benefit payments. Showing evidence of the ability to administer benefit payments and other workers compensation services that may be mandated by state laws.

Workers Compensation and Employers Liability Insurance


The Workers Compensation and Employers Liability policy contains one general section and 6 Parts. The general section states various definitions and conditions. Here are details on the 6 Parts.

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Part I - Workers Compensation Insurance


Part one outlines the statutory benefits paid by the insured they include: Compensation for bodily injury caused by accident or disease, including death that result from accident or disease. Benefits for medical expenses, mileage, loss of time, temporary and permanent total disability, partial disability, burial allowance and rehabilitation.

Payments are made to employees regardless of fault, as long as the injuries are work-related.

Part II - Employers Liability Insurance


Employers liability insurance covers situations that are not covered by Workers Compensation laws, such as exempt employments, illegal employments and non-compensable injuries. Part II applies to work-related bodily injury or occupational disease, and bodily injury includes death. Under this part, the policy also pays for damages resulting from bodily injury claims initiated by employees. Protects the insured employer from negligence suits brought by employees because of work-related injuries. The basic liability limit of $100,000 can be increased.

Exclusions Part II does not pay for: Liability assumed by contract Punitive or exemplary damage payments Bodily injury to an employee while employed in violation of the law with the insureds knowledge Intentional bodily injury Damages arising out of discrimination

Work Related vs. Non-work Related To be covered under Workers Compensation, an injury or disease must arise out of, and in the course of, employment. The employee must have been engaged in work related activities.

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A non-work related injury is one suffered by the employee while not in the course of employment. Example: If an employee sponsors a picnic and a work colleague is injured playing softball, the injury would not be work related, and would not be covered by workers compensation.

Part III - Other States Insurance


Part III coverage is not meant to apply to ongoing operations. As a result, no premium is charged, regardless of the extent of the insured's known operations or the number of states listed. Part III automatically provides coverage to the insured in other states as long as those states are specified and the insured informs the company about additional states as soon as work begins. It is not available in those states that have a state fund in which private insurance is not allowed. This protection is important for employers with expanding interstate operations.

Part IV - Your Duties If Injury Occurs


If an injury occurs to a covered employee, the employer must notify the insurance company immediately and the insured must cooperate with the insurer and promptly notify the company of an employees injury. The insurer reserves the right to inspect the workplace at any time. The insured can cancel at any time, while the insurer must give 10 days notice of cancellation.

Part V - Premium
This part explains how the cost of the policy is determined.

Part VI - Conditions
Part VI, Conditions, sets forth the various conditions that apply to the policy, such as cancellation procedures, subrogation and the insurers right to inspect the insureds workplace.

Bonding and Crime


Insurance bonds are three-party contracts - actually policies - in which one party agrees to guarantee the actions, performance or behaviors of a second party or parties to a third party. Two common types of bonds are fidelity and surety.
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Fidelity Bonds
A Fidelity Bond is an insurance policy that guarantees an employees honest discharge of duties. It is written to protect an insured from dishonest acts by employees. Most fidelity bonds contain a discovery period, which is a period of time for which indemnity still exists for loss after the bond itself has expired - usually after one year. Bonds are contracts between three parties: Principal The party who promises to do, or not to do, a specific thing. This is the person bonded. Surety The party (often the insurance company) who agrees to be responsible for losses that may result if the principal does not keep his or her promise. Obligee Party to whom the principal makes the promise, and for whose protection the bond is being written.

Types of Fidelity Bonds


Scheduled Fidelity Bond Scheduled Fidelity Bond can be either a name schedule or position schedule. (To schedule something means to list it.) Fidelity bonds written on a name schedule basis list the names of the individuals to be bonded. When written on a position schedule basis, fidelity bonds list the positions to be bonded. The amount of the bond or penalty is also listed and can be different for each name and position. Blanket Fidelity Bond Blanket Fidelity Bond provides blanket protection for an employer, covering all employees without exception. As a result, if a covered loss occurs, there is no need to identify the dishonest employee; the employer need only prove that the loss occurred. There are two types of blanket bonds: 1.Commercial Blanket Bond It provides for the bonds penalty - its limit - to be the maximum amount applicable to any single loss, regardless of the number of employees involved. This is called an aggregate penalty because it aggregates, or collects, losses under an umbrella of a specified maximum amount for any single loss.

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Although a loss does not reduce coverage for any future losses caused by other employees, no more coverage will be provided for future losses caused by someone who has already created a loss. Coverage is in effect whether dishonest employees act separately or in collusion. There is a one year discovery period. 2.Blanket Position Bond It provides for a specific individual penalty listed in the bond for each of the insureds employees. This bond has a multiple penalty, which means that the payment of any one loss does not reduce the coverage offered for future losses that may occur due to the actions of other employees. There is a two year discovery period.

Miscellaneous Fidelity Bond Issues


Fidelity bonds are continuous, without any expiration date. The can be terminated by the parties to the bond. They provide a discovery or cut-off period for losses that occurred during the term of the bond, but were not discovered until after its termination.

Surety Bonds
A surety bond is an insurance policy that guarantees one party will make good the default, debt other obligation of another party. Parties to a surety bond are: Obligee Individual or entity requiring a bond prior to commencement of business. The Obligee receives the bond. Principal The primary individual or entity that obtains the bond and will be performing the duties Surety The party who ensures that the Principals obligations will be performed.

Contract Bonds
Contract bonds guarantee that a specific contract will be completed to specification. Contract bonds are often used in construction with contractors and sub-contractors to guarantee performance.

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License & Permit Bonds


License & Permit Bonds are used to ensure compliance with laws, regulations and ordinances. Businesses are typically required to post a license & permit bond in order to engage in a specific type for business. Examples include: insurance adjusters, insurance agents and producers, mortgage brokers, real estate brokers, broker-dealers and securities dealers.

Judicial Bond
A Judicial Bond is any bond filed with the court. Examples include: Administrator / Executor's Bond Ensures an estates executor will execute duties toward a deceaseds estate according to the law. Guardian's Bond Guarantees that a court-appointed guardian will carry out assigned custodial duties in conjunction with a minor or incapacitated person. Replevin Bond If property is seized by the court, the Replevin bond ensures its return. Additionally, if the court decides in favor of the other party, this bond guarantees the payment of damages.

Crime and Commercial Crime Insurance


As its name implies, this insurance protects businesses against property loss resulting from crimes such as burglary, robbery and theft. Lets review some of the basic coverages:

Theft, Disappearance and Destruction (Coverage Form C)


Broad coverage for the companys money and securities, which are usually excluded under the Premises Burglary and Robbery and Safe Burglary forms.

Inside the Insureds Premises coverage provides coverage against theft, disappearance or destruction inside the premises. It also pays for damage to locked containers by theft or unlawful entry, and damage to the premises caused by a theft. Outside the Premises coverage pays for loss of money and securities through theft, disappearance or destruction outside the premises and in the care and custody of an insured, business partner, employee, or armored car company.

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Robbery and Safe Burglary (Coverage D)


Provides coverage for businesses against robbery or attempted robbery the taking of property by one who has threatened to commit bodily harm or who has committed a witnessed, obviously unlawful act. Makes provision for coverage of property other than money and securities both inside and outside the premises. Inside the premises coverage may be written to cover both robbery and safe burglary, or can be limited to either robbery or safe burglary. Outside the premises coverage applies to robbery of property in the care and custody of a messenger. o A messenger is defined as an insured, partner, officer or any other employee of the insured who is authorized to have custody of the insured property outside the insured premises. o A custodian is defined in the same way as a messenger, but is found inside the premises. o A guard or watchperson means any person the insured retains specifically to have care and custody of property inside the premises and who doesnt have any other duties. Premises Burglary (Coverage Form E) covers businesses against losses from burglary. The policy covers all the insureds merchandise other than money and securities.

The key to burglary coverage is evidence of forcible entry or exit. An event where the thief simply walks in, scoops up merchandise and leaves does not constitute a burglary

Professional Liability
Professional liability arises from a failure to use due care, and/or exercise the degree of skill required and expected in a particular profession. A profession is a vocation, calling or occupation involving labor, skill, education and special knowledge of an intellectual nature. Typical professionals include physicians, attorneys, accountants, engineers, architects, securities and insurance professionals.

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Errors and Omissions (E&O)


It insurance addresses the professional liability needs of lawyers, engineers, architects, insurance agents, real estate agents, registered representatives, and others professionals.

Directors and Officers Liability


It is a form of E&O that protects directors and officers of corporations who may be sued as individuals by stockholders. Directors and officers have no coverage for personal liability under a CGL, and no coverage under the Homeowners contract for liability arising out of business pursuits.

Umbrella/Excess Liability Policies


Umbrella policies are designed to protect an insured individual or business agent against catastrophic or disastrous claims. An umbrella policy provides low-cost coverage for liability risks that exceed primary coverage. Umbrella liability policies have become popular in recent years as professionals in upper -and even middle -management positions have realized the extent their business and personal liability exposures. The umbrella usually provides coverage of at least a million dollars over and above the primary amount carried. Primary insurance policies pay first, up to the policy limits, regardless of other insurance in effect. Excess insurance, like an umbrella policy, only begins to pay after primary insurance has been exhausted.

Personal Umbrella Coverage


Personal umbrella coverage provides individuals and families with low-cost, highlimit protection over the basic liability protections in several personal policies: Comprehensive Personal Liability in Section II of the Homeowners Policy Automobile liability Other personal (not business) liability insurance

Personal Umbrella Liability insurance is written with a minimum limit of one million dollars, with higher limits available.

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Commercial Umbrella Coverage


The commercial umbrella policy provides excess limits for general liability, automobile liability, and employers liability, and also protects the insured firm from exclusions and gaps in the primary liability policies. A Commercial Umbrella policy provides coverage in three situations: The Policy limits of an underlying policy have been exhausted. Previous losses reimbursed under an underlying policy have reduced its aggregate limit so that a subsequent loss is not fully covered. A Loss is excluded under an underlying contract, but not excluded under the Umbrella.

Aviation Insurance
Aviation insurance protects an individual or entity involved in the manufacture, use or operation of an aircraft. Aviation insurance includes all facets of general aviation - flight instructors, aircraft manufacturers, pilots, airlines or airports. Like auto or homeowners insurance, aviation insurance provides coverage for property damage and/or medical payments (when combined with passenger liability coverage), property loss, and bodily injury. Coverage is written as all-risk or all-risk while not in flight. All-risk coverage protects against all risks while the aircraft is in the air or on the ground, though there are usually exceptions and limitations. All-risk while not in flight offers coverage to the aircraft only when it is on the ground.

Aircraft Liability Insurance


It extends coverage to passengers and other third parties.

Aircraft Hull Coverage


It covers losses or damage to the hull of the aircraft. The hull includes all major structural components of an aircraft, including wings, instrument panel, fuselage, tail, rudder, and other structural components. Note: Aviation Insurance policies do not include commercial airlines or the military. This concludes lesson nine. Return to your online course player to take the lesson quiz.

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Lesson 10: POLICY PROVISIONS


This lesson focuses on the following topics: Parts of an Insurance Contract Definition of the Insured Cancellation Nonrenewal Supplementary Payments Proof of Loss Notice of Claim Arbitration Subrogation Fair Credit Reporting Act (FCRA) Other Insurance Right of Salvage Claims Made Policy Form Consent to Settle Losses Statute of Limitations

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Parts of an Insurance Contract


Because an insurance policy is a legal contract, it must be specific about the agreements between the insured and the insurer. Most policies contain five parts, and you can remember them with the acronym D - I - C - E - D: D - Declarations are usually found on the first page of the policy, and include: the kind of insurance, the name and address of the insured, description of the property, amount of coverage, and the cost of the policy. I - Insuring Agreements are the core of the policy. This section describes the insured property and the perils that are covered by the policy. To use insurance language, it describes the losses for which the insured will be indemnified or protected. C - The Conditions section outlines the responsibilities and obligations of both the insurance company and the insured. E - The Exclusions section describes losses the policy doesnt cover in other words, losses for which the insured will not be indemnified. D - The Definitions section clarifies the meaning of certain terms used in the policy.

Definition of the Insured


The insured is defined in every property and casualty policy. A party not specifically named as an insured has no legal right to recover directly under a policy, even if that party has an insurable interest in the insured property at the time of loss. Keep in mind, however, that it is possible for a person who is not specifically named in the contract can still have recovery rights in the event of loss. A guest staying at your home, for example, is covered for specific types of loss under Dwelling and Homeowners forms.

Duties of the Insured


Give written or telephone notice of claim immediately. Prevent further loss as reasonably possible. Separate damaged from undamaged property to determine loss. Inventory the loss. Prepare a proof of loss which is required by the insurer within a reasonable time period, usually 60 days. Make all books and records pertaining to the loss available to the insurer.

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Cancellation
Either the insured or insurer may cancel provided coverage. Each property and casualty policy details the reasons for which the insurer can cancel the policy. These reasons must be in compliance with individual state laws. The insurance company must give written notice as required by the state, but the insured can request immediate cancellation, without notice. If the insurance company cancels the policy any unearned premium will be returned on a pro rata basis. There is no allowance for deductions such as service fees. This allows the insured to get back all the money that has not been used or applied to premium cost. If the insured cancels the policy, any unearned premium will be returned on a short rate basis, with deductions made for servicing the policy, and other fees. With the short rate basis, the insurance company can recoup some of the costs of underwriting and policy processing. A flat cancellation occurs if either the insured or the insurance company cancels the policy on its effective Date, with no financial loss to either.

Nonrenewal
Nonrenewal is a notice given by the insurance company to the insured indicating the intention not to renew the policy upon the normal termination date. There may be some limitations on the insurance company for nonrenewal.

Supplementary Payments
Liability policies provide certain Supplementary Payments that are paid in addition to the policys regular limit of liability. These coverages vary from one type of liability policy to another, but in general they include: Premiums for certain types of bonds such as bail and appeal bonds. Expenses incurred in the investigation of a claim. Loss of earnings First aid to others at the time of an accident. Reasonable expenses incurred by the insured at the companys request in the investigation or defense of a claim. Prejudgment interest that is not included as part of damages. Post judgment interest, which is interest accruing on the judgment after an award has been made but before payment is made by the company.

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Proof of Loss
Filing a detailed proof of loss, which is an official inventory of the damages, is one of the duties owed to the insurance company by the insured. Filing a detailed proof of loss, which is an official inventory of the damages, is one of the duties owed to the insurance company by the insured.

Notice of Claim
This is a responsibility of the insured after a loss. A Notice of Claim must be given to the insurance company promptly.

Arbitration
Arbitration is used to resolve areas of disagreement between the insured and the insurance company, between two insurers or, in the case of liability insurance, between the company and a third party. An arbitrator listens to both parties and makes a fair decision based on oral evidence provided by both. Typically, both parties agree to be bound by the arbitrators decision.

Subrogation
Subrogation is a word that means substitution. In the legal arena the process works like this: The insureds insurance company (Company A) pays losses that were caused by an insured of another insurance company (Company B). In return for the claim payment, the insured gives Company A the right to arbitrate or sue Company B to recover the payment. This transfer of the insureds right of recovery against others to the insurance company is called Subrogation.

Fair Credit Reporting Act (FCRA)


The Fair Credit Reporting Act was designed to ensure accuracy, preserve privacy, and place limits on the activities of various Consumer Reporting Agencies. The agent has a duty to explain the terms of the FCRA because applicants are asked to sign forms that give underwriters the authority to investigate the applicants background, especially financial records.

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The FRCA also gives consumers the right to discover what information an investigative agency has provided about them, and to whom such reports have been made. If a consumer is denied insurance because of information contained in a credit report, general reputation or personal character, the consumer must be notified. The consumer has six months to correct erroneous information.

Other Insurance
When more than one insurance company insures a piece of property, pro rata liability rules will apply, in keeping with the doctrine of indemnity. The formula to establish settlement contributions is as follows: Company A Coverage Amount ----------------------------------------Total Amount of Insurance (from all companies)

x Loss = Amount company A will pay

Heres a way to remember the formula: DID Coverage from company A ----------------------------------------SHOULD Coverages from all companies

x Loss = Amount company A will pay

Example
Alice, a hard working author, purchases a retreat home in upstate Wisconsin. Alice needs seclusion to write her blockbusters but unfortunately, the price of seclusion is loss of convenient services like nearby fire hydrants. Alice attempts to purchase a full coverage insurance policy for her $300,000 home from Lake in the Hills Insurance Company, but the Company will only provide insurance for $150,000 (Policy A). Alice then goes to the Elgin Insurance Company and picks up a policy (Policy B) for the remaining $150,000. What will happen if there is a $50,000 loss? Will both companies pay the $50,000?

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Well, we know for sure that both companies wont pay the $50,000 because of the doctrine of indemnity. Lets take a look at what the companies will pay under pro rata liability: Policy A = $150,000 ------------ x $50,000 = $25,000 $300,000 Policy B = $150,000 ------------$300,000

x $50,000 = $25,000

Total Settlement = $50,000

Right of Salvage
When an insurance company settles a claim it owns a right to salvage the property that has only been partially damaged, or which has been destroyed but still has a salvage value. The insurance company can reduce its losses in the matter by selling the salvage to a salvage dealer. The company may determine whether or not property will be repaired, replaced or cash will be provided. In situations where an insured property is not completely destroyed, the insurance company may take possession of it and receive its salvage value when it has replaced or has made a cash settlement to the insured party.

Claims Made Policy Form


The Claims Made Policy Form is the Commercial General Liability coverage form that pays for BI and PD losses when claims are made against the insured during the policy period.

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Consent to Settle Losses


In the past, Professional Liability policies contained a provision that the insurer could not settle a claim without the insureds consent. Most policies now provide that such consent is not required.

Statute of Limitations
Statutory law sets time frames during which an injured party can bring a lawsuit. Unless legal action is brought within this time period, the right to sue for injury will disappear. Each state has its own Statutes of Limitations. This concludes lesson ten. Return to your online course player to take the lesson quiz.

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